10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

Commission file number 0-21421

VCAMPUS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	54-1290319
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
1850 Centennial Park Drive Suite 200 Reston, Virginia	20191
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: 703-893-7800

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($0.01 par value per share)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o   No x.

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes oNo x.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes oNo x.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer o     Accelerated Filer o     Non-Accelerated Filer x

The aggregate market value of the common stock held by non-affiliates of the registrant based upon the closing price of the common stock of $0.62 per share on March 20, 2006 on the Nasdaq Capital Market System was approximately $4,817,254 as of such date (and approximately $7,677,712 as of June 30, 2005, the last business day of the registrant’s most recently completed second quarter). Shares of common stock held by each executive officer and director and by each person known by the registrant who owns 10% or more of the outstanding common stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status may not be conclusive for other purposes.

As of March 20, 2006, the registrant had outstanding 9,613,502 shares of common stock.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company’s Proxy Statement for the 2006 Annual Meeting of Stockholders are incorporated herein by reference into Part III of this report.

NOTE REGARDING FORWARD-LOOKING STATEMENTS

Statements in this Annual Report on Form 10-K that are not descriptions of historical facts are forward-looking statements that are subject to risks and uncertainties. Actual events or results could differ materially from those currently anticipated due to a number of factors, including those set forth herein and in VCampus’ other SEC filings, and including, in particular: continuing losses and negative operating cash flows; future capital needs and uncertainty of additional funding; intense and increasing competition; dependence on significant customers; risks associated with acquisitions, a developing market, rapid technological changes and new products; dependence on online distribution; substantial dependence on courseware and third party courseware providers; substantial dependence on third party technology; risks associated with potential failure to maintain our Nasdaq Capital Market listing and our dependence on key personnel.

PART I

Item 1.Business

Executive Summary

VCampus Corporation is a provider of comprehensive outsourced e-Learning services. We develop courseware and manage and host Internet-based learning environments that help professional credentialing and certification organizations, corporations, government agencies and associations unlock the value of their branded course content. Our services cover a broad range of e-Learning programs, from registration, enrollment and course delivery to custom course development, e-commerce and publishing, as well as tracking of students’ progress, reporting of results and production of certificates of completion. VCampus was incorporated in Virginia in July 1984 and reincorporated in Delaware in March 1985.

Through proprietary software, we provide customers with comprehensive services on an outsourced, or hosted, basis. Our goal is to be the leading service provider of integrated e-Learning services by helping customers improve their performance and achieve their goals. We believe that our outsourced hosting approach to web-based e-Learning services provides significant business advantages to our customers.

Beginning in 2004, we have shifted our emphasis to focus on our Select Partnerâ program business model and away from our former, or Legacy, business model. Under the Select Partner program, we develop online courses for Select Partners that provide professional credentials or certifications or the training for such credentials and certifications that are demanded by the markets served by their members or target audiences. We design and build courses based upon each Select Partner’s existing course materials and/or content, which they have historically delivered or published in a traditional textbook or classroom-based manner, and convert them into interactive, e-Learning courses. Some of our Select Partners advance funds to cover some or all of the development expenses. For others, we develop the courses at our expense. In return, each Select Partner generally enters into an exclusive, long-term contract for VCampus to host and deliver the courses to the Select Partner’s members or target audience. As part of this program, we share the gross revenue generated from these courses with the Select Partner.

We also maintain customers under our Legacy business model. Under this model, we charge customers a relatively low upfront fee to establish a customized virtual campus, or “VCampus,” and then charge customers on either a subscription (set fee per period) or usage (charge for actual courses delivered) basis. We are in the process of transitioning the majority of our business to the Select Partner model and plan to exit our Legacy business model within five years. Approximately 19% of our revenue for the year ended December 31, 2005 was derived from the Select Partner model and 81% from our Legacy business model. We anticipate that the percentage of revenue derived from our Select Partner business model will increase over time as the program matures and revenue from Legacy customers stabilizes.

Under the Select Partner model, we target the market for professional and technical credentials, certifications and continuing education supporting those certifications and credentials. Our primary

2

marketing goals are to identify and partner with certification and credentialing organizations with: (1) 10,000 or more memberships; (2) increasing demand for their subject matter, body of knowledge or certification; (3) successful instructor-led education programs; and (4) minimal online education presence. We offer these organizations the opportunity to grow their revenues by leveraging and scaling their existing instructor-led programs through our outsourced e-Learning offering. Under a typical Select Partner agreement, we enter into an exclusive e-Learning relationship with the partner for three to four years, and we typically share the revenue from online sales equally with the partner in return for our development of the courses from the partner’s content. Historically, there has been no charge to the partner for the course development except for the cost of providing subject matter experts to assist in design, development and review of the online course. However, we are transitioning to a model where we expect our partner to contribute at least 50% to the cost of their courseware development. This new expense-sharing model helps to ensure the partner has a vested interest in the success of the course. VCampus and the partner typically co-own the completed online course. The Select Partners can therefore repurpose their highly-demanded training courses for online delivery to enhance and support their professional development programs. The Select Partners benefit from our expert course development, publishing, hosting, e-commerce, reporting and account support and marketing services. We enable these organizations to add online learning quickly, efficiently and relatively inexpensively. The Select Partner program enables us to reach these targeted markets through courses exclusively available on our platform.

As of March 2006, we had 14 Select Partners, through which we have released a total of 21 course titles and three exams and have also converted 27 course titles from another hosting platform to ours. We are currently developing four additional Select Partner courses for release. Under this program, we have delivered more than 4,000 courses since completion of the pilot program in the fall of 2003.

Under our Legacy business model, our primary target markets are the corporate, government and association member training markets. Since we are phasing out of and plan to ultimately exit the Legacy model, we no longer devote significant resources to marketing to this market broadly. Instead, we focus our sales efforts on expanding revenue from our current Legacy customers as well as pursuing promising leads and referrals that come to our attention.

As of March 2006, under the Legacy model we offer more than 3,800 online course titles and have delivered more than 3.0 million courses to more than 1.0 million desktops/users since inception of the program in 1997.

We believe our market strengths to be:

·minimal upfront investment required for customers;

·ready-to-go library of more than 3,800 online courses;

·consistent delivery of high-quality courseware;

·proven system performance and scalability;

·exceptional customer service and relationships; and

·system compliance with industry standards including: SCORM (Shareable Content Object Reference Model), Section 508 (of the Federal Rehabilitation Act), AICC (Aviation Industry Computer-based Training Committee—established standards of interoperability) and SOAP (Simple Object Access Protocol).

We believe that we hold the following key advantages in the e-Learning marketplace:

Diversified business base.   We serve customers from a wide variety of market sectors—including corporations, government agencies, associations and professional credentialing and certification

3

organizations. This diversification enables us to provide our customers with the opportunity and ability to participate in and market themselves to multiple communities of learning. The VCampus platform enables our customers to share content, thereby creating cross-sale opportunities from customer to customer. Several of our customers successfully sell their content to other VCampus customers simply by offering their content on the advanced VCampus platform.

Open technology.   Our technology affords customers a number of advantages in terms of its ability to rapidly and cost-effectively implement a comprehensive and secure e-Learning and training environment. Our content-neutral, open architecture platform allows for access to a wide range of aggregated content and the ability to quickly add new functionality, leverage new technology and to support a vast number of users. Our web services capabilities enable customers to easily integrate our technology with other existing systems (including enterprise resource planning, or ERP, systems and human resource information systems).

Extensive experience.   We have operated in the e-Learning space for more than nine years and have delivered more than 3.0 million courses to more than 1.0 million desktops/users. We maintain solid, long-term relationships with established customers and benefit from a highly experienced and knowledgeable management team. Our management team has a combined 48 years of experience in the e-Learning and related technology market.

Expansive library of content aggregated from leading sources.   Our existing content library includes publicly-available online courses from more than 40 publishers, including SkillSoft, ElementK, American Media, Vital Learning and Crisp Learning (Course Technology). We also distribute some courseware that has been developed by our customers, such as the New York Institute of Finance, to other VCampus customers. Our wholly-owned library of telecommunications courses is marketed under the Teletutor brand name. Finally, our Select Partner program enables our customers to sell or use recognized brand credentialing and certification courseware appropriate to their market and/or employees or members.

Courseware Development Experience.   We have significant courseware development experience, built over the past ten years. We have experienced instructional designers and project managers on staff supplemented by offshore courseware development firms. We develop high quality courseware, implementing the latest designs for optimization of adult learning, quickly and cost effectively. The scalability of our courseware development infrastructure enables us to meet the growing demands of our Select Partners.

Flexibility.   The flexibility of our technology and implementation process enables us to respond to diverse customer needs. We offer rapid implementation on a content-neutral platform that allows access to both off-the-shelf and proprietary courseware. We offer customization of our products and services for each customer, as well as rapid incorporation of new technologies. Our technology and services are designed to be scaleable on demand to meet customer needs.

Comprehensive Services.   We offer a completely hosted as well as behind-the firewall systems, accessible by virtually any web browser. Our offerings include a leading edge Learning Management System, Course Management System and Courseware Delivery Engine. Our technology and service have been proven and tested through successful implementations for scores of customers, through which thousands of students have experienced VCampus-based e-Learning for up to nine years. Additionally, we continue to introduce new technology to provide additional features for our customers.

Company Strategy

Our goal is to be the leading service provider of integrated e-Learning services by helping customers improve their performance and achieve their goals. Our strategies to achieve this objective include continuing to: create partnerships with leading credentialing and certification organizations; develop high

4

quality courseware quickly for our Select Partners; provide superior customer service; and develop new and upgrade existing technologies. Our strategy also includes increasing revenue from each customer by converting more of each customer’s proprietary instructor-led content to online distribution through the VCampus platform. We also intend to grow the cross-selling of content between various customers. The intended result is increased market penetration and enhanced customer loyalty.

Create Partnerships with Leading Credentialing Organizations

The Select Partner program is our core focus for expanding the business. Under this strategy, we seek to partner with organizations that provide highly-sought credentialing or certification services to large addressable markets. Our target partners currently provide most, if not all, of their educational programs through instructor-led programs, thus leaving an under-addressed market opportunity for end users who seek the credentialing or certification through an online course. By developing online courses under our Select Parmer program, we are able to address this market opportunity jointly with these partners.

During 2004, we formed new relationships with the following seven Select Partners, the majority of which offer credentials or training for learners interested in obtaining credentials: the Association for Financial Professionals, PCI Global, Inc., the National Council of State Boards of Nursing, the National Contract Management Association, the American College of Forensic Examiners International, the New York Institute of Finance and Kiplinger Washington Editors, Inc. During 2005 and through the first quarter of 2006, we formed new relationships with the following four Select Partners: Regulatory Affairs Professionals Society, Sourcefire, Inc., the CFA Institute and the Emergency Nurses Association.

Develop High Quality Courseware Quickly for Select Partners

Addressing the market opportunity swiftly is essential to a successful Select Partner strategy. With nearly a decade experience in the budding e-Learning industry, we have developed the capabilities and expertise to fulfill the course development needs of our current and new partners quickly, while delivering superior quality. As such, we are able to work with our Select Partners to transform their traditional, instructor-led content into high-quality online courses while the market opportunity is still ripe.

Provide Superior Customer Service

Our core customer service principle is to deliver uniquely superior service through creative, committed and well-trained employees who work as a team. Each VCampus employee has defined roles and responsibilities for monitoring and supporting the health and growth of our customer relationships. Furthermore, each team is responsible for continuous review of its customers’ content needs, introduction of existing and new VCampus services, recommendation of suitable additional content, identification of the potential need for custom courseware development and recommendation of platform configurations for customer-specific business processes.

Develop and Upgrade Proprietary Technology

We intend to maintain our market position in online courseware delivery technology by continuing to develop and enhance the features and functionality of our proprietary technology. Our system is designed to accommodate users on both low and high bandwidth connections. Additionally, our system is completely outsourced with little or no investment in software or hardware required of customers or students (other than access to the Internet via a web browser).

During 2003 and early 2004, we announced the introduction of VCampus’ enhanced web-based Course Management System to support both self-paced and instructor-managed online learning. The VCampus Course Management System (CMS) 5.0 delivers important features including a newly designed Gradebook that tracks multiple student activities, integrated course discussion boards, a built-in testing and assessment

5

engine, as well as powerful communications tools. This CMS release marks the implementation of a new Java-based enterprise architecture designed for highly reliable, hosted e-Learning. CMS 5.0 also includes a newly-designed course authoring tool.

Early in 2004, we introduced a new Learning Management System (LMS). This LMS, which we license from a third-party provider, provides our customers with the ability to support and manage online, live and blended learning. Capabilities include advanced LMS features, live chat, skills assessment and multilingual capabilities. The LMS provides learners with convenient access to course-specific data, supporting information and communications functions, all in one convenient location on the desktop. The system also includes a personal calendar, reminder notes and other tools that make learning more efficient. The system is customizable and allows our clients to obtain their own look, feel and features on a hosted basis. The new LMS integrates with human resource, enterprise resource planning and customer relationship management and other enterprise systems. In 2005, we continued development of both our CMS and Legacy LMS through feature and performance enhancements. In addition, we started a project to develop a new assessment system (to replace our legacy assessment system) which we plan to release by June 30, 2006.

VCampus also developed VNexus™, a next generation integration platform which made us the first e-Learning company to launch a fully SOAP-compliant Learning Management platform with superior web services capabilities. By standardizing on the SOAP protocol, VNexus employs XML, a recognized universal standard, to communicate with an organization’s information technology infrastructure. XML provides inherent flexibility because it can operate across any operating system or platform, thereby reducing possible barriers to integration. Recognizing that some organizations have not standardized on XML, we also offer other communication formats with VNexus.

Existing Courseware Library

We currently offer more than 3,800 courses real-time on our e-Learning system, the majority of which are publicly-available courses. Our courseware strategy involves the provision of the following three components: (1) strategically-developed courses from VCampus based on Select Partner content; (2) COTS, or commercial off-the-shelf, courses from a variety of leading third-party course vendors; and (3) custom courseware development for the proprietary training needs of our customers.

Strategically Developed Courses

We invest in the development of courses which we deem strategic in nature to attract customers with strong revenue prospects. Typically, this type of course is developed in partnership with a leading expert in the field, typically under the Select Partner program. Content considered for co-development must target a large, reachable audience and offer the audience some compelling reason to attend the course (e.g., compliance with laws, certification, CPEs or CEUs). Examples of strategically-developed courses include Information Security and Project Management courses. Courses so developed may be owned, at least partially, by us.

COTS Library

The majority of the online courses delivered from our library through our e-leaning system are commercial off-the-shelf, or COTS, courses. The current library was built from a combination of acquisitions, our own development efforts and relationships with leading content providers such as SkillSoft, Element K, Coastal Training Technologies, PureSafety, PCI Global, Course Technology Publications, Aztec Software and the New York Institute of Finance. Although we do not provide accreditation or certification itself, a number of our current courses provide either accreditation or certification through our content providers.

6

Custom Library

Our existing custom courseware library consists of online courses built by our legacy corporate, government agency, and association customers for their own proprietary use. Approximately 50% of these legacy customers have such custom courses ranging from a few courses to 50 or more per customer. We believe these courses increase customer retention and provide more long-term revenue potential than commercial off-the-shelf courses, which have become commoditized.

Customers

Our primary target markets for our Select Partner program are professional credentialing and certification organizations, corporations, government agencies, and associations. In 2004, our online tuition revenues were balanced fairly equally among the government, corporate training and higher education distance learning customers with 4% of total revenues derived from professional credentialing and certification organizations. In 2005, total revenues were balanced fairly equally between government and corporate training customers with revenues derived from professional credentialing and certification organizations at approximately 19% of our total revenues. We expect revenues from professional credentialing and certification organizations to grow to a larger percentage of our total revenues in the coming years.

Sales and Marketing

Our primary marketing goals are to identify and attract organizations that offer the opportunity for developing significant relationships with us. Our principal marketing and sales focus is the Select Partner program. Our sales force and marketing efforts target organizations that offer highly-sought after professional credentials or certifications to organizations with generally at least 10,000 members. We target organizations that, additionally, offer little to no online learning currently to their members. In turn, under this program our Select Partners become a sales and marketing channel for the courses we jointly introduce on the VCampus platform.

In the Legacy business, our sales and marketing efforts are limited and focused. Our primary target markets are the corporate, government and association member training markets. Since we are phasing out of and ultimately exiting the Legacy model, we no longer devote significant resources to marketing to this market broadly. Instead, we focus our sales efforts on expanding revenue from our current Legacy customers as well as pursuing promising leads and referrals that come to our attention.

In addition to direct sales efforts, we market our products and services through a variety of means, including Select Partners, the Web, public relations, trade shows, direct mail, trade publications, resellers and strategic partners. We believe that forming strategic marketing alliances with channel partners who will sell, promote and market our products and services will be important for growth.

Competition

The market for online educational and training products and services is highly competitive and will likely intensify. Although we know of no other company offering a program substantially similar to our Select Partner program, there are no significant barriers to entry in the online education and training market. Competition in the market is based upon various factors, including technology, course offerings, pricing, quality, flexibility, reliability of delivery system, marketing and third party relationships.

A number of companies, including SkillSoft, SumTotal Systems, Saba and Pearson, compete in this market, as well as many others. In addition to traditional classroom and distance learning providers, other institutions such as Apollo Group (through University of Phoenix Online) offer their own accredited courses online. Many education providers use some of our methods, including e-mail, bulletin boards,

7

threaded discussion and electronic conferencing, as well as other delivery methods such as satellite communications and audio and videotapes.

We believe that it is becoming increasingly apparent that e-Learning providers must not only remain technologically advanced, but also, more importantly, offer “complete” service offerings. This “complete service offering” approach includes offering customers: access to a large library of high quality, off-the-shelf courses; the ability to produce customized courses quickly and effectively; and value-added features that allow flexibility and scalability. Additionally, successful e-Learning services must be affordable, convenient and easy to use and administer.

Trademarks and Proprietary Rights

We regard our copyrights, trademarks, trade dress, trade secrets and similar intellectual property as critical to our success, and we rely upon federal statutory as well as common law copyright and trademark law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights. We own registered trademarks in the United States for: Courseware Construction Set, Pointpage, Content Matters, V (& design), VCampus (& design), www.vcampus.com, Select Partner and Govlearn. We have filed intent-to-use applications for the following: VCampus Your e-Learning Partner, VCMP, Unlock the Value of Your Branded Content and VCampus Professional Certification & Development Center. We have licensed the right to use the web address www.vcmp.com.

Employees

As of March 1, 2006, we had 31 employees, consisting of eight full-time and three part-time employees in general business operations, six full-time employees in sales and marketing, eight full-time employees in product development, and five full-time and one part-time employee in finance and administration. None of our employees is represented by a union and there have been no work stoppages. We believe that our employee relations are good.

Where you can find additional information

Our website address is www.vcampus.com. We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.

Item 1A.Risk Factors.

This report contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in this report. Factors that could cause or contribute to these differences include, but are not limited to, those discussed below and elsewhere in this report and in any documents incorporated in this report by reference.

If any of the following risks, or other risks not presently known to us or that we currently believe to not be significant, develop into actual events, then our business, financial condition, results of operations or prospects could be materially adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose all or part of their investment.

We have incurred losses and anticipate future losses, which could have an adverse impact on the trading price of our common stock.We have incurred significant losses since our inception in 1984, including net losses attributable to common stockholders of $6.2 million, $6.6 and $5.9 million for the years ended December 31, 2003, 2004 and 2005, respectively. As of December 31, 2005, we had an

8

accumulated deficit of $102.9 million, stockholders’ equity of $2.7 million and working capital of $0.7 million. We expect losses from operations to continue until our Select Partner business model matures. For these and other reasons, we cannot assure you that we will ever operate profitably, which could have an adverse impact on the trading price of the shares held by our stockholders.

If we do not have the resources to meet our business objective, we might not survive or be successful.Our key objective is to be one of the leading providers of outsourced e-Learning services. Pursuing this objective may significantly strain our administrative, operational and financial resources. We cannot assure you that we will have the operational, financial and other resources to the extent required to meet our business objective, which means we might not survive or be successful.

Failure to raise additional capital, as and when needed, could prevent us from executing our business strategy and could prevent us from maintaining compliance with Nasdaq listing standards.If we are not able to generate sufficient cash for ongoing operations, we will need to raise additional funds through public or private sale of our equity or debt securities or from other sources for the following purposes:

·to execute on our Select Partner business model;

·to fund our operating expenses; and

·to maintain compliance with the minimum stockholders’ equity required for continued listing on Nasdaq.

We cannot assure you that additional funds will be available if and when we need them, or that if funds are available, they will be on terms favorable to us and our stockholders. If we are unable to obtain sufficient funds or if adequate funds are not available on terms acceptable to us, we may be unable to meet our business objectives. A lack of sufficient funds could also prevent us from taking advantage of important opportunities or being able to respond to competitive conditions. Any of these results could have a material adverse effect on our business, financial condition and results of operations.

Our need to raise additional funds could also directly and adversely affect stockholder investment in our common stock in another way. When a company raises funds by issuing shares of stock, particularly at a discount to the market price, the percentage ownership of the existing stockholders of that company is reduced, or diluted. If we raise funds in the future by issuing additional shares of stock (as we have in the past), stockholders may experience significant dilution in the value of their shares. Additionally, certain types of equity securities that we have issued in the past, including our currently outstanding Series A-1 and B-1 Preferred Stock, and may issue in the future could have rights, preferences or privileges senior to the rights of the holders of our common stock.

We have in the past and may in the future fund the Company with debt obligations which typically require payment of principal and interest in cash, therefore, reducing the cash we would have available to meet operating requirements. We began making quarterly principal and interest payments in cash on our outstanding convertible debt in July 2005. Cash payments for principal under these notes are $99,000 per quarter through the maturity date in April 2009. Initial cash payments for interest under these notes were approximately $36,000 per quarter beginning July 2005 and will gradually be reduced as the principal is paid down. Additionally, debt obligations may make additional financing offerings more difficult to enter into which may result in less favorable financing terms for us.

If we fail to maintain compliance with our Nasdaq Capital Market listing, the value and liquidity of our shares could be impaired.Our common stock is currently listed on the Nasdaq Capital Market (formerly known as the Nasdaq SmallCap Market). Nasdaq has certain requirements that a company must meet in order to remain listed on the Nasdaq Capital Market. If we continue to experience losses from our operations or if we are unable to raise additional funds as needed, we may not be able to maintain compliance with the minimum $2.5 million stockholders’ equity requirement for

9

continued listing on the Nasdaq Capital Market. At December 31, 2005, our stockholders’ equity was $2.7 million. To address our deficiency in the required minimum stockholders’ equity at September 30, 2005, we completed a $2.3 million equity private placement of our Series A-1 Preferred Stock in December 2005, which permitted us to demonstrate stockholders’ equity of approximately $3.95 million on a pro forma basis as of September 30, 2005 after giving effect to the net proceeds received in the financing. Nasdaq notified us in January 2006 that we had regained compliance with the stockholders’ equity requirement. However, Nasdaq will continue to monitor our stockholders’ equity and we would become subject to delisting proceedings if we fail to remain in compliance. We demonstrated compliance with the stockholders’ equity requirement at December 31, 2005 and our $2.3 million private placement of Series B-1 Preferred Stock in March 2006 further increased our stockholders’ equity.

In addition, we received a notice in October 2005 from the Nasdaq Stock Market indicating we were not in compliance with Nasdaq’s requirements for continued listing because, for the previous 30 consecutive business days, the bid price of our common stock had closed below the minimum $1.00 per share requirement for continued inclusion under Nasdaq Marketplace Rule 4450(a)(5) (the “Minimum Bid Price Rule”). Nasdaq stated in its notice that in accordance with Nasdaq Marketplace Rules, we will be provided 180 calendar days, or until April 26, 2006, to regain compliance with the Minimum Bid Price Rule.

If at any time before April 26, 2006, the bid price of our common stock closes at $1.00 per share or more for a minimum of 10 consecutive business days, Nasdaq will provide us written notification that we have achieved compliance with the Minimum Bid Price Rule. No assurance can be given that we will regain compliance during the 180-day compliance period. The closing sale price of our common stock on March 20, 2006 was $0.62 per share. If we do not regain compliance during the compliance period, Nasdaq would then provide us with written notice that our common stock would be delisted from the Nasdaq Capital Market. The Nasdaq Capital Market and the Nasdaq Over-the-Counter Bulletin Board are significantly less active markets than the Nasdaq National Market. Stockholders could find it more difficult to dispose of their shares of our common stock than if our common stock were listed on the Nasdaq National Market.

If our common stock were delisted from the Nasdaq Capital Market, it could be more difficult for us to obtain other sources of financing in the future. Moreover, if our common stock were delisted from the Nasdaq Capital Market, our stock could be subject to what are known as the “penny stock” rules. The “penny stock” rules place additional requirements on broker-dealers who sell or make a market in such securities. Consequently, if we were removed from the Nasdaq Capital Market, the ability or willingness of broker-dealers to sell or make a market in our common stock could decline. As a result, the ability of our stockholders to resell their shares, and the price at which they could sell their shares, of our common stock could be adversely affected. If our common stock were delisted from the Nasdaq Capital Market, it could be more difficult for us to retain existing and obtain new customers. The ability to continue to form new strategic relationships may be negatively impacted. As a result, delisting could result in a negative impact on our customer base and revenue, and, consequently, a negative impact on stockholder value.

The large number of our shares eligible for future sale could have an adverse impact on the market price of our common stock.A large number of shares of common stock already outstanding, along with shares issuable upon exercise of options or warrants or conversion of convertible notes, are eligible for resale, which may adversely affect the market price of our common stock. As of December 31, 2005, we had 9,592,074 shares of common stock outstanding, 1,402,395 shares of common stock were issuable upon conversion of Series A-1 Preferred Stock, another 849,946 shares were issuable upon conversion of convertible notes and another 7,080,163 shares were issuable upon exercise of outstanding warrants and options. Substantially all of the shares subject to outstanding warrants and options will, when issued upon

10

exercise, be available for immediate resale in the public market pursuant to currently effective registration statements under the Securities Act of 1933, as amended, or pursuant to Rule 701 or Rule 144 promulgated thereunder. Some of the shares that are or will be eligible for future sale have been or will be issued at discounts to the market price of our common stock on the date of issuance.

In December 2005, we issued 2,342 shares of Series A-1 Preferred Stock (convertible into a total of 4,684,000 shares of common stock assuming the lowest reset conversion price of $0.50 per share) and warrants to purchase a total of 3,702,000 shares of common stock in a private placement financing and agreed to register the resale of all of these shares by May 2006. We have agreed to register for resale all of the shares of common stock issued or issuable in connection with our December 2005 financing. Resales or the prospect of resales of these shares may have an adverse effect on the market price of our common stock. See also the description of our recent Series B-1 Preferred Stock financing, representing additional shares available for future issuance, under the heading “Liquidity and Capital Resources” in the Management Discussion and Analysis of Financial Condition and Results of Operations in this report.

Our substantial dependence on third-party relationships could impair our ability to achieve our business objectives and serve our customers.We rely on maintaining and developing relationships with customers, Select Partners, professional credentialing and certification organizations and other businesses that provide content for our products and services, corporations, government agencies, and associations and with companies that provide the Internet and related telecommunications services used to distribute our products and services to customers.

We have relationships with a number of customers, professional credentialing and certification organizations and other businesses that provide us with course content for our online products and services, as well as access to their members who are the ultimate end users of our products. Some of the agreements we have entered into with these content providers limit our use of their course content, some do not cover use of any future course content and most may be terminated by either party upon breach of the agreement by the other party or bankruptcy of the other party. For example, our agreement with Certified Financial Analysts, or CFA, can be terminated by CFA in the event our common stock is involuntarily delisted from the Nasdaq Capital Market. Our ASP-based business model is not compatible with the business models of certain content providers which may lead them to terminate the future licensing of existing and new course content to us or fail to make this content available to us at commercially reasonable rates or terms necessary for success under our business model. Given our plans to introduce additional online courses in the future, we will need to license new course content from existing and prospective content providers. However we might not be able to maintain and modify, if necessary, our existing agreements with content providers, or successfully negotiate agreements with prospective content providers. If the fees we pay and/or the expenses we incur to acquire or distribute content increase, our operating costs and results of operations could be adversely affected. We might not be able to license or otherwise acquire course content at commercially reasonable rates or at all.

We have licensed a Learning Management System from a third party provider under an agreement that expires on December 31, 2008. If the provider does not perform on the contract, does not continue to upgrade and maintain the LMS, does not renew the agreement with VCampus or in some other way impairs our ability to provide the LMS to our customers, our ability to compete would be adversely affected.

We depend heavily on third-party providers of Internet and related telecommunications services. In order to reach customers, our products and services have to be compatible with the web browsers they typically use. Our customers have access to us through their arrangements with Internet service providers. We also depend heavily on the third-party provider of our off-site data center and the related utilities (electricity and HVAC), physical security and access, and Internet services that it provides.

11

For our customers, the professional credentialing and certification organizations and other businesses that provide content for our products and services, the companies that provide the Internet and related telecommunications services used to distribute our products and services to customers, and the web-site operators that provide links to our company web-sites, we cannot assure you that:

·they regard their relationships with us as sufficiently important to their own businesses and operations;

·they will not reassess their commitment to our products or services at any time in the future;

·they will not develop their own competitive products or services;

·the products or services by which they provide access or links to our products or services will achieve market acceptance or commercial success; or

·our relationships with them will result in successful product or service offerings or generate significant revenues.

If one or more of these entities fail to achieve or maintain market acceptance or commercial success, or if one or more of the entities that do succeed decide to end their relationship with us, we might not be able to generate sufficient revenues to be successful and stockholder investment would be impaired.

We may be unable to effectively integrate any acquisitions we might make, which could disrupt or have a negative impact on our business.   Part of our growth strategy includes pursuing acquisitions. Any integration process may be complex and time consuming, may be disruptive to the business and may cause an interruption of, or a distraction of management’s attention from, the business as a result of a number of obstacles, including but not limited to:

·the loss of key customers of the acquired company;

·the incurrence of unexpected expenses and working capital requirements;

·a failure of our due diligence process to identify significant issues or contingencies or to properly assess the value and determine an appropriate purchase price;

·difficulties assimilating the operations and personnel of the acquired company;

·difficulties effectively integrating the acquired technologies with our current technologies;

·Our inability to retain key personnel of acquired entities;

·failure to maintain the quality of customer service;

·Our inability to achieve the financial and strategic goals for the acquired and combined businesses; and

·difficulty in maintaining internal controls, procedures and policies.

Any of the foregoing obstacles, or a combination of them, could increase selling, general and administrative expenses in absolute terms and/or as a percentage of net sales, which could in turn negatively impact our net income and cash flows.

As part of our plans to grow our business, we periodically evaluate potential acquisition candidates that we believe would compliment our e-Learning business. We have limited experience acquiring other businesses and there can be no assurance that we will be successful completing acquisitions or integrating the operations of acquired companies into our business. We cannot predict the effect expansion may have on our core business. Regardless of whether we are successful in completing any acquisitions, the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses.

12

Our facilities, personnel and financial and management systems may not be adequate to effectively manage the future expansion we believe necessary to increase our revenues and remain competitive.We anticipate that future expansion will be necessary in order to increase our revenues. In order to effectively manage our expansion, we may need to attract and hire additional sales, administrative, operations and management personnel. We cannot assure you that our facilities, personnel and financial and management systems and controls will be adequate to support the expansion of our operations, and provide adequate levels of service to our customers and partners. If we fail to effectively manage our growth, our business could be harmed.

We operate in a highly competitive industry and may not be able to compete effectively.The market for online educational and training products and services is highly competitive and we expect that competition will continue to intensify. There are no substantial barriers to entry into our business, and we expect that established and new entities will enter the market for online educational and training products and services in the near future.

A number of our existing competitors, as well as a number of potential new competitors (including some of our strategic partners), have longer operating histories, greater name recognition, larger customer bases, more diversified lines of products and services and significantly greater resources than we do. Such competitors may be able to undertake more extensive marketing campaigns, adopt more aggressive pricing policies and make more attractive offers to potential customers. In the past few years, a number of our customers have demanded upgrades to our technology platform. Our relatively limited capital resources might not afford us a full opportunity to meet these demands. Recently, we have noticed that some of the more widely available online course offerings, particularly those targeted to the corporate training market, are increasingly competing primarily on price, which commoditization drives down margins for all competitors in our industry. In competing against us, our strategic partners could use information obtained from us to gain an additional competitive advantage over us. Our current and potential competitors might develop products and services that are superior to ours or that achieve greater market acceptance than ours. We might not compete effectively and competitive pressures might prevent us from acquiring and maintaining the customer base necessary for us to be successful.

As the revenue potential for online delivery of educational and training courses continues to grow, the market is likely to attract a number of large, well-capitalized competitors seeking to diversify their revenue streams into this market. Not only will some of these potential competitors be well capitalized and be willing to operate in the market at a loss to build market share, they may also acquire and/or substantially fund our other competitors which could weaken demand for our products and make it more difficult for us to reach or even prevent us from reaching profitability.

The loss of services of any member of our key personnel could prevent us from adequately executing on our business strategy.Our future success depends on the continued contributions of our key senior management personnel, consisting of Narasimhan Kannan, Chief Executive Officer, Christopher Nelson, Chief Financial Officer, Ronald Freedman, Senior Vice President, e-Learning Solutions, Laura Friedman, Vice President—Co-Publishing, and Kerry Frederick, Vice President of Content Sales. We do not maintain “key man” life insurance on any of our executive officers. The loss of services of any of our key management personnel, whether through resignation or other causes, or the inability to attract qualified personnel as needed, could prevent us from adequately executing our business strategy.

Our results of operations have fluctuated significantly from period to period, and a failure to meet the expectations of investors or the financial community at large could result in a decline in our stock price.   Our expense levels are based in part on our expectations as to future revenues. Quarterly sales and operating results generally depend on the online revenues and development and other revenues, which are difficult to forecast. In addition, past results have shown our business to be subject to a material adverse seasonality associated with the large number of holidays in the calendar fourth quarter. We may not be able to adjust

13

spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant revenue shortfall would have an immediate adverse impact on our business and financial condition.

Our operating results may fluctuate significantly in the future as a result of a variety of factors, some of which are outside of our control. These factors include:

·demand for online education and especially the demand for professional certification and continuing education;

·the budgeting cycles of customers, particularly in the government sector;

·seasonality of revenues corresponding to holidays in the United States;

·capital expenditures and other costs relating to the expansion of operations or the acquisition of complimentary businesses;

·the introduction of new products or services by us or our competitors;

·the mix of the products and services sold and the channels through which those products and services are sold;

·pricing or accounting changes; and

·general economic conditions.

As a strategic response to a changing competitive environment, we may elect from time to time to make certain pricing, service or marketing decisions that could have a material adverse effect on us. We believe that period-to-period comparisons of our operating results should not be relied upon as an indication of future performance. Due to all of the foregoing factors, it is possible that in some future quarter, our operating results will be below the expectations of public market analysts and investors. In such event, the price of our common stock would likely decline. We also believe that the price of our shares has been adversely affected, and may continue to be adversely affected, by short sales by unknown groups and by the involuntary listing of our shares in the unregulated Berlin Stock Exchange. The Berlin Stock Exchange is known to permit “naked shorts” and creates an environment for the speculation in shares that is not permitted under U.S. law.

We rely on significant customers, and if we fail to maintain and develop relationships with such customers, we might not generate revenues necessary to achieve our business objectives.A significant portion of our revenues is generated by a limited number of customers. For the twelve months ended December 31, 2005, two customers, the U.S Department of Veterans’ Affairs and a large insurance company, accounted for approximately 36% and 20% of our revenues, respectively. In 2004, three customers, the U.S. Department of Veterans’ Affairs, Park University and a large insurance company, accounted for approximately 27%, 25% and 21% of our revenues, respectively. We expect that we will continue to depend on large contracts with a limited number of significant customers at least through the near future. This situation can cause our revenue and earnings to fluctuate between quarters based on the timing of contracts. Most of our customers have no obligation to purchase additional products or services from us.

Park University elected not to renew its relationship with VCampus as of May 2004. Park University represented 25% of VCampus revenues in 2004 and 36% in 2003. In addition to the loss of the revenue from Park University, our ability to compete effectively in the higher education market space has been adversely impacted by the loss of this customer.

If we fail to maintain and develop relationships with significant customers, we might not be able to generate revenues necessary to achieve our business objectives.

14

We rely heavily on a limited number of contracts with the U.S. government, which are subject to termination for convenience by the government at any time. While we have experienced no such terminations and have had contracts with these agencies for a number of years, should such terminations occur, they could cause a material adverse impact on our operations.During the twelve months ended December 31, 2005 and 2004, 39% and 35%, respectively, of our net revenues were derived from performance on a limited number of contracts with U.S. government agencies, primarily the Department of Veterans Affairs, which represented 36% and 27% of our net revenues for the twelve months ended December 31, 2005 and 2004, respectively. Therefore, any significant disruption or deterioration of our relationship with the U.S. government agencies with which we do business would significantly reduce our revenues. Our competitors continuously engage in efforts to expand their business relationships with the government and are likely to continue these efforts in the future. Our contracts with the government are generally multiyear contracts, however, they are subject to non-renewal annually, as well as termination by the government for convenience at any time. The government may choose to use contractors with competing technologies or it may decide to discontinue any of our programs altogether. In addition, the contracts that we do obtain require ongoing compliance with applicable government regulations. Termination of our contracts, a shift in government spending to other programs in which we are not involved, a reduction in government spending generally, or our failure to meet applicable government regulations could have a material adverse impact on our operations.

System failures and capacity constraints could interfere with our efforts to attract customers and attain market acceptance of our products and services.A key element of our strategy is to generate a high volume of online traffic to our products and services. Accordingly, the performance of our products and services is critical to our reputation, our ability to attract customers and attain market acceptance of our products and services. Any system failure that causes interruptions in the availability or increases response time of our products and services would result in less usage of our products and services and, especially if sustained or repeated, would reduce the attractiveness of our products and services. For example, in 2005 we experienced a number of “downtimes” with our data center provider that we consider unacceptable. Although we have taken actions to remedy these failures, they might recur. In addition, our system has single points of failure and requires a weekly maintenance window, both of which increase the time the system is unavailable to our users. An increase in the volume of use of our products and services could strain the capacity of the software or hardware we use or the capacity of our network infrastructure, which could lead to slower response time. Any failure to expand the capacity of our hardware or network infrastructure on a timely basis or on commercially reasonably terms would reduce the attractiveness of our products and services. We also depend on web browsers and Internet service providers for access to their products and services, and users may experience difficulties due to system failures unrelated to our systems, products and services.

If the security of information stored in and transmitted through computer systems of VCampus and its end-users is not adequately secured, we could incur significant liability and potential customers might be deterred from using our products and services.We include in our products certain security protocols that operate in conjunction with encryption and authentication technology. In addition, we monitor our system with intrusion detection devices. Despite these technologies, our products may be vulnerable to break-ins and similar disruptive problems caused by online users. Such computer break-ins and other disruptions would jeopardize the security of information stored in and transmitted through our computer systems and the computer systems of end-users, which may result in significant liability for us and may also deter potential customers. For example, computer “hackers” could steal, remove or alter portions of our online courseware or customer payment and identification information. Persistent security problems continue to plague the Internet, the Web and other public and private

15

data networks. Alleviating problems caused by third parties may require us to make significant expenditures of capital and other resources and may cause interruptions, delays or cessation of service to our customers and to us. Moreover, our security and privacy concerns and those of existing and potential customers, as well as concerns related to computer viruses, may inhibit the growth of the online marketplace generally, and our customer base and revenues in particular. We attempt to limit our liability to customers, including liability arising from a failure of the security features contained in our products, through contractual provisions limiting warranties and disallowing damages in excess of the price paid for the products and services purchased. However, these limitations might not be enforceable. We maintain liability insurance to protect against these risks. However, this insurance may be inadequate or may not apply in some situations.

We might not be successful in responding to the changing market for our products and services.The market for our products and services is evolving in response to recent developments relating to online technology. The market is characterized by evolving industry standards and customer demands and an increasing number of market entrants who have introduced or developed online products and services. It is difficult to predict the size and growth rate, if any, of this market. As is typical in the case of a rapidly evolving industry, demand and market acceptance for recently introduced products and services are subject to a high level of uncertainty. Our future success will depend in significant part on our ability to continue to improve the performance, features and reliability of our products and services in response to both evolving demands of the marketplace and competitive product offerings, and we cannot assure that we will be successful in developing, integrating or marketing such products or services. In addition, our new product and courseware releases may contain undetected errors that require significant design modifications, resulting in a loss of customer confidence.

We might not be able to adequately protect our intellectual property rights.We regard our copyrights, trademarks, trade secrets and similar intellectual property as critical to our success, and we rely upon trademark and copyright law, trade secret protection and confidentiality and/or license agreements with our employees, customers, partners and others to protect our proprietary rights.

We have had certain trademark applications denied and may have more denied in the future. We will continue to evaluate the need for registration of additional marks as appropriate. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our products or services or to obtain and use information that we regard as proprietary. In addition, the laws of some foreign countries do not protect proprietary rights to as great an extent as do the laws of the United States. Litigation may be necessary to protect our proprietary technology. Any such litigation may be time-consuming and costly, cause product release delays, require us to redesign our products or services or require us to enter into royalty or licensing agreements, any of which could have a material adverse effect upon us. For example, we were forced to pursue legal action during 2004 to prevent unauthorized use of the web address www.vcampus.us and we are currently pursuing efforts to eliminate the unauthorized use of the domain name www.vcampus.ch by a third party. These royalty or licensing agreements, if required, may not be available on terms acceptable to us or at all. Our means of protecting our proprietary rights might not be adequate and our competitors might independently develop similar technology, duplicate our products or services or design around patents or other intellectual property rights we have. In addition, distributing our products through online networks makes our software more susceptible than other software to unauthorized copying and use. For example, online delivery of our courseware makes it difficult to ensure that others comply with contractual restrictions, if any, as to the parties who may access such courseware. If, as a result of changing legal interpretations of liability for unauthorized use of our software or otherwise, users were to become less sensitive to avoiding copyright infringement, we might not be able to realize the full value of our intellectual property rights.

16

Government regulation of business conducted on the Internet could decrease the demand for our products and services or increase our cost of doing business.There are currently few laws or regulations that directly apply to activities on the Internet. We believe that we are not currently subject to direct regulation by any government agency in the United States, other than regulations that are generally applicable to all businesses. A number of legislative and regulatory proposals are under consideration by federal and state lawmakers and regulatory bodies and may be adopted with respect to the Internet and/or online delivery of course content. Some of the issues that these laws and regulations may cover include user privacy, pricing and characteristics and quality of products and services. The adoption of any such laws or regulations may decrease the growth of the Internet, which could in turn decrease the projected demand for our products and services or increase our cost of doing business. The applicability to the Internet of existing U.S. and international laws governing issues such as property ownership, copyright, trade secret, libel, taxation and personal privacy is uncertain and developing. For example, we have an open matter before the Virginia Department of Taxation as to whether we owe use tax on third-party royalties paid by us to content providers for courses we delivered online. Any new legislation or regulation, or application or interpretation of existing laws, could decrease online demand for our products and services or increase our costs.

We could issue additional preferred stock and take other actions that might discourage third parties from acquiring us.Our board of directors has the authority, without further action by the stockholders, to issue shares of preferred stock and to fix the rights, preferences, privileges and restrictions, including voting rights, of such shares. In December 2005, we created and issued a new class of Series A-1 Preferred Stock. The rights of the holders of the common stock will be subject to, and may be adversely affected by, the rights of the holders of the Series A-1 Preferred Stock and any other preferred stock that we may issue in the future such as the new class of Series B-1 Preferred Stock we created and issued in March 2006. Issuing preferred stock could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change in control of our company. Furthermore, the preferred stock may have other rights, including economic rights, senior to our common stock, and as a result, the existing or future preferred stock could decrease the market value of our common stock.

Certain provisions of our certificate of incorporation and our bylaws could make it more difficult for a third party to acquire, and could discourage a third party from attempting to acquire, control of VCampus. Some of them eliminate the right of stockholders to act by written consent and impose various procedural and other requirements which could make it more difficult for stockholders to undertake certain corporate actions. These provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock and may have the effect of delaying or preventing a change in control of VCampus. We may in the future adopt other measures that may have the effect of delaying, deferring or preventing a change in control of VCampus. Certain of these measures may be adopted without any further vote or action by the stockholders, although we have no present plans to adopt any such measures. We are also afforded the protections of Section 203 of the Delaware General Corporation Law, which could delay or prevent a change in control of VCampus, impede a merger, consolidation or other business combination involving our company or discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of VCampus.

We might not be able to use net operating loss carryforwards.As of December 31, 2005, we had net operating loss carryforwards for federal income tax purposes of approximately $69.7 million, which will expire at various dates through 2025. Our ability to use these net operating loss and credit carryforwards to offset future tax obligations, if any, may be limited by changes in ownership. Specifically, management believes that deemed changes in ownership resulting from our recent equity financings will likely prevent us from using part or all of the net operating losses and credit carryfowards under the IRS change in

17

ownership rules. We have recognized a full valuation allowance against these deferred tax assets because we have determined that it is more likely than not that sufficient taxable income will not be generated during the carryforward period available under the tax law to utilize the deferred tax assets. Any limitation on the use of net operating loss carryforwards, to the extent it increases the amount of federal income tax that we must actually pay, may have an adverse impact on our financial condition.

We do not presently anticipate paying cash dividends on our common stock.We intend to retain all earnings, if any, for the foreseeable future for funding our business operations. Consequently, we do not anticipate paying any cash dividends on our common stock for the foreseeable future, which could deter some investors from seeking to acquire our common stock.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this report discuss our plans and strategies for our business and are “forward-looking statements” as that term is defined in the Private Securities Litigation Reform Act. The words “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends” and similar expressions are meant to identify these statements as forward-looking statements, but they are not the exclusive means of identifying them. The forward- looking statements in this report reflect the current views of our management; however, various risks, uncertainties and contingencies could cause our actual results, performance or achievements to differ materially from those expressed or implied by these statements, including:

·our history of losses and negative operating cash flows;

·the uncertainties and risks we face relating to our Nasdaq Capital Market listing;

·the large number of our shares eligible for future sale could have an adverse impact on the market price of our common stock;

·our future capital needs and the uncertainty of additional funding;

·our potential inability to compete effectively;

·a developing market, rapid technological changes and new products;

·risks associated with acquisitions and expansion;

·our dependence on significant clients;

·our substantial dependence on courseware and third-party courseware providers;

·our substantial dependence on third-party relationships; and

·changes in accounting methods or estimates underlying these methods.

We assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. In light of the risks and uncertainties discussed in this section and elsewhere in this report, events referred to in forward-looking statements in this report might not occur.

Item 1B.Unresolved Staff Comments.

Not applicable.

Item 2.Properties.

Our executive offices and principal administration, technical, marketing and sales operations are located in approximately 16,700 square feet of leased space in Reston, Virginia pursuant to a lease that

18

expires in February 2010. The aggregate annual monthly rent for this facility is $43,965, subject to 3% annual increases. We believe that our existing office space is sufficient to accommodate our current needs and that suitable additional space will be available on commercially reasonable terms to accommodate any expansion needs through 2006 should the need arise.

Item 3.Legal Proceedings.

Although we are not currently involved in any material pending legal proceedings, we could be subject to legal proceedings and claims in the ordinary course of our business or otherwise, including claims relating to license agreements, royalties or claims of alleged infringement of the trademarks and other intellectual property rights of third parties by us and our licensees.

Item 4.Submission of Matters to a Vote of Security Holders.

No matters were submitted to a vote of security holders during the fourth quarter ended December 31, 2005.

Executive Officers

As of March 20, 2006, our executive officers were as follows:

Name	Age	Positions
Nat Kannan	56	Chairman and Chief Executive Officer
Christopher L. Nelson	43	Chief Financial Officer, Chief Information Officer and Secretary
Kerry A. Frederick	53	Vice President, Content Sales
Ronald E. Freedman	56	Senior Vice President, e-Learning Solutions
Laura B. Friedman	44	Vice President, Co-Publishing

Narasimhan “Nat” Kannan has served as VCampus’ Chairman of the Board of Directors since he founded VCampus in 1984. He resumed the Chief Executive Officer position in December 2002, a position he formerly held from 1984 to 2000. Prior to founding VCampus, he co-founded Ganesa Group, Inc., a developer of interactive graphics and modeling software, in 1981. He also served as a consultant to Booz Allen and Hamilton, Inc., the MITRE Corporation, The Ministry of Industry of the French Government, the Brookhaven and Lawrence Livermore National Laboratories, the White House Domestic Policy Committee on Energy and Control Data Corporation. He holds a B.S. in Engineering from the Indian Institute of Technology in Madras, India, and he performed advanced graduate work in business and engineering at Dartmouth College.

Christopher L. Nelson joined VCampus as Chief Financial Officer and Chief Information Officer in June of 2002. Mr. Nelson oversees the entire technology, operations and customer service areas of the business in addition to his finance and accounting department responsibilities. Prior to his appointment as our CFO, Mr. Nelson was a Principal of Monticello Capital LLC since 1998, where he advised high-growth technology businesses and their corporate boards on corporate finance, capitalization transactions, and mergers and acquisitions. Mr. Nelson held positions as CEO, COO and CFO of niche, high tech companies in the Internet space prior to joining VCampus (including Kignet, Inc., Monumental Network Systems, and IMA Software, Inc.) during which he developed particular expertise in bringing companies to cash flow positive positions. Mr. Nelson also held executive positions at NTT/Verio, as well as sales and marketing and manufacturing positions at IBM Corporation. Mr. Nelson holds a Master of Business Administration from The Wharton School at the University of Pennsylvania and a Bachelor of Science degree in Chemical Engineering from the University of Delaware. Mr. Nelson also previously served as a George Mason Fellow, acting as an advisor to start-up and early stage technology companies on a volunteer basis through the TechVenture Partnership at George Mason University.

19

Kerry A. Frederick joined VCampus as Vice President of content sales in October 2005. In that position, he leads our efforts to accelerate the growth of our Select Partner courseware revenues through global channels and enterprise sales. Prior to joining VCampus, Mr. Frederick was the Vice President of Sales for Knowlagent, Inc., an Atlanta, Georgia-based provider of web-based learning and performance improvement solutions, since 2001. At Knowlagent he developed a targeted approach to expanding coverage and creating greater value for the Knowlagent solution resulting in significant increases in customers and revenue as well as market expansion in Europe. Prior to working at Knowlagent, he was a partner and Vice President of Sales for Technology Ventures, Inc., a private investment firm which invested in a number of portfolio companies, including The McCall Consulting Group, which has provided consulting services and high-end certification training for a variety of software development solutions since 1993. He holds Bachelors and Masters Degrees in Business from Georgia State University and has done advanced studies in Marketing Management from Stanford University Graduate School of Business.

Ronald E. Freedman is responsible for e-Learning Solution sales with a particular emphasis on the government market. Mr. Freedman has more than 20 years of hands-on experience in sales management, strategic planning, business development, and execution of profit and loss responsibility. Mr. Freedman joined VCampus in 2001 from USinternetworking, Inc. (USi) where he was Vice President of Information Assurance and Chief Security Officer from 1999 through 2001. While at USi, he was responsible for the design, implementation and management of the USi Total Security Architecture, a best-of-breed security portfolio. Prior to joining USi, Freedman was Vice President of one of the business divisions at The Netplex Group, Inc. for four years. There, he was responsible for sales, marketing and fulfillment of a wide range of technology-based products and services. Previously, Mr. Freedman was Vice President, Systems and Services for COMSIS Corporation, where he managed the division of the professional services company providing contingency planning and information security services to commercial and government customers. He also served as Executive Vice President of Advanced Information Management, Inc., where he was responsible for marketing and delivering information security and contingency planning services to Fortune 500 customers. Mr. Freedman worked for General Electric Company for fifteen years, most recently as General Manager, Disaster Recovery Services and Manager, Strategic Planning and Business Development. He also served as a Presidential appointee, on loan to The White House from General Electric, responsible for developing contingency plans as part of the Continuity of Government Program. Mr. Freedman holds a BA in Economics from Northeastern University in Boston and an MBA in Management from Babson College in Wellesley, MA. He currently serves as Chairman of ITAA’s e-Learning Committee.

Laura B. Friedman is responsible for developing and managing partnerships under the Select Partner program and for our courseware production group, or Custom Design Studio. Ms. Friedman is an experienced professional publishing executive, having served for more than 17 years in a variety of marketing, editorial and content development positions in both traditional and electronic publishing. Prior to joining VCampus, she served as Vice President of Learning Services at Zoologic, Inc. from November 2002 to August 2004. A long time supporter of e-Learning, she founded the e-Learning program at The New York Institute of Finance (NYIF), Pearson’s financial training division, where she was Vice President of e-Learning from May 1996 to November 2002. In addition to creating NYIF’s portfolio of online courses in financial training, Laura oversaw custom development projects for clients such as Accenture, Arthur Andersen and the Financial Times. She served as Director, International Marketing for Business, Professional and Reference products at Simon & Schuster. At McGraw-Hill and Time Warner’s Book-of-the-Month Club, Ms. Friedman held a variety of editorial and marketing positions in professional publishing. She holds a B.A. from the State University at Albany and a MBA from Fordham University.

20

PART II

Item 5.Market for Registrant’s Common Equity and Related Stockholder Matters.

(a)Price Range of Common Stock

Our common stock is currently listed and trades on the Nasdaq Capital Market under the symbol “VCMP.” For each full fiscal quarter since the beginning of 2004, the high and low bid quotations for our common stock, as reported by Nasdaq, were as follows:

	High		Low
2004
First quarter	$	3.74	$	1.42
Second quarter	$	10.00	$	1.95
Third quarter	$	3.20	$	1.03
Fourth quarter	$	2.95	$	1.04
2005
First quarter	$	2.33	$	1.31
Second quarter	$	1.72	$	0.85
Third quarter	$	1.49	$	0.71
Fourth quarter	$	1.00	$	0.41

The foregoing bid quotations reflect inter-dealer prices, without retail mark-ups, mark-downs or commissions, and may not represent actual transactions.

Since our IPO in late 1996, the public market for our common stock has been characterized by low and/or erratic trading volume, often resulting in price volatility. There can be no assurance that there will be an active public market for our common stock in the future. The market price of the common stock could be subject to significant fluctuations in response to future announcements concerning us or our partners or competitors, the introduction of new products or changes in product pricing policies by us or our competitors, proprietary rights or other litigation, general conditions in the e-Learning market, developments in the financial markets and other factors. In addition, the stock market has, from time to time, experienced extreme price and volume fluctuations that have particularly affected the market prices for technology companies and which have often been unrelated to the operating performance of the affected companies. Broad market fluctuations of this type may adversely affect the future market price of the common stock. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

(b)Approximate Number of Equity Security Holders

As of March 20, 2006, the number of record holders of our Common Stock was 126 and we believe that the number of beneficial owners was approximately 2,000.

(c)Dividends

We have never paid a cash dividend on our common stock and we do not anticipate paying cash dividends in the foreseeable future. Moreover, any preferred stock that we could issue in the future and any future credit facilities might contain restrictions on our ability to declare and pay dividends on our common stock. We plan to retain all earnings, if any, for the foreseeable future for use in the operation of our business and to fund the pursuit of future growth. Future dividends, if any, will depend on, among other things, our results of operations, capital requirements and on such other factors as our Board of Directors, in its discretion, may consider relevant.

21

Item 6.Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements and the related notes, and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included elsewhere in this annual report. The statement of operations data for the years ended December 31, 2003, 2004 and 2005, and the balance sheet data as of the years then ended, are derived from, and are qualified by reference to, our audited consolidated financial statements that have been audited by Reznick Group, P.C., our independent auditors. The statement of operations data for the years ended December 31, 2001 and 2002, and the balance sheet data as of the years then ended, are derived from, and are qualified by reference to, our audited consolidated financial statements that have been audited by Ernst & Young LLP, our prior independent auditors.

Statement of Operations Data:

	2001			2002			2003			2004			2005
	(In thousands except per share data)
Net revenues:
Online tuition revenues	$	5,782		$	5,330		$	5,508		$	4,498		$	4,046
Virtual campus software revenues	72			—			—			—			—
Online development and other revenues	687			496			448			318			518
Product sales revenues	45			—			—			—			—
Other service revenues	122			100			110			48			—
Instructor-led training revenues	102			—			—			—			—
Total net revenues	6,810			5,926			6,066			4,864			4,564
Costs and expenses:
Cost of revenues	1,093			1,462			1,718			1,357			1,731
Sales and marketing	4,554			2,689			2,138			1,895			1,723
Product development and operations	2,273			2,536			2,475			2,725			2,649
General and administrative	2,045			1,693			1,910			1,687			1,488
Depreciation and amortization	2,154			1,356			880			1,227			1,574
Reorganization and other non-recurring charges	188			192			173			—			—
Stock-based compensation	441			76			126			154			110
Total costs and expenses	12,748			10,004			9,420			9,045			9,275
Loss from operations	(5,938		)	(4,078		)	(3,354		)	(4,181		)	(4,711		)
Other income (expense):
Other income	—			422			207			183			—
Interest income (expense)	5			(220		)	(112		)	(2,581		)	(1,155		)
Loss on debt extinguishments	—			(503		)	—			—			—
Net loss	$	(5,933	)	$	(4,379	)	$	(3,259	)	$	(6,579	)	$	(5,866	)
Dividends to preferred stockholders	(649		)	(2,768		)	(2,927		)	—			(14		)
Net loss attributable to common stockholders	$	(6,582	)	$	(7,147	)	$	(6,186	)	$	(6,579	)	$	(5,880	)
Net loss per share	$	(5.23	)	$	(4.79	)	$	(1.81	)	$	(0.97	)	$	(0.63	)
Net loss per share—assuming dilution	$	(5.23	)	$	(4.79	)	$	(1.81	)	$	(0.97	)	$	(0.63	)

22

	2001			2002			2003			2004			2005
Balance Sheet Data:
Working capital (deficit)	$	(885	)	$	(828	)	$	(1,187	)	$	1,820		$	701
Total assets	7,012			4,373			4,864			7,119			5,478
Total liabilities	4,198			2,725			2,828			2,274			2,817
Accumulated deficit	(77,060		)	(84,207		)	(90,393		)	(96,972		)	(102,852		)
Total stockholders’ equity	2,814			1,648			2,035			4,845			2,661

Per share amounts for all periods presented have been adjusted to reflect the one-for-ten reverse stock split which occurred in July 2002.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of financial condition and results of operations should be read in conjunction with VCampus’ consolidated financial statements and related notes thereto included elsewhere in this report.

Overview

Our revenues are derived from two primary sources:

·online tuition revenues; and

·development and other revenues;

Online tuition revenues are generated primarily from online tuition derived from corporate, government and association customers and sales of our Select Partner courseware. Development and other revenues consist primarily of fees paid to us for creating and developing new online courseware and web-enabling existing courseware.

Critical Accounting Policies and Estimates

Our critical accounting policies are more fully described in note 2 to our consolidated financial statements included in this Annual Report on Form 10-K. Certain of our accounting policies require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates. By their nature, these judgments are subject to an inherent degree of uncertainty. These judgments are based on practices, information provided by our customers and other assumptions that we believe are reasonable under the circumstances. Our estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the consolidated financial statements in the period in which they are determined to be necessary. Actual results may differ from these estimates under different assumptions or conditions. Our critical accounting policies and estimates include:

Revenue Recognition

We derive our revenues from the following sources—online tuition revenues and development and other revenues.

Online tuition revenue is recognized in accordance with SEC Staff Accounting Bulletin No. 104, Revenue Recognition (SAB 104). SAB 104 generally requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable: and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the fee charged for services rendered and the collectibility of those fees. Should changes in conditions cause management to determine these criteria are not met for certain sales, revenue recognized for any

23

reporting period could be adversely affected. Online tuition revenues are generated primarily through three types of contracts: (i) corporate subscriptions, (ii) contracts with Select Partners and (iii) corporate usage. Under corporate subscriptions and Select Partner contracts, revenue is recognized ratably (on a straight-line basis) over the subscription period. For usage contracts, revenue is recognized upon enrollment in a course. Once a student has enrolled in a course, he generally cannot cancel delivery of a course or receive a refund. On rare occasions, we may extend the subscription length for a specific student’s course at no charge. Initial set-up fees related to all online tuition services are recognized ratably (on a straight-line basis) over the contract term.

Development and other revenues consist primarily of fees paid to us for developing and converting courseware. For arrangements that include more than one element, we allocate the total arrangement fee among each deliverable based on vendor-specific objective evidence (“VSOE”) of the relative fair value of each deliverable. VSOE is determined using the price charged when that element is sold separately by us. Development and other revenues earned under courseware conversion contracts are recognized relative to our proportionate performance based on the ratio that total costs incurred to-date bear to total estimated costs. We use direct labor hours as the key criteria to measure progress towards completion. We develop our estimates to complete based on budgeted total costs and periodic assessment by our project managers.

We sometimes recognize development and other revenues as a separate element of an arrangement with a customer that also contains an element to provide courseware delivery services. The SEC Staff believes that the best indicator that a separate element exists is that a vendor sells or could readily sell that element unaccompanied by other elements. We have a history of selling courseware development and conversion services unaccompanied by other elements. Further, EITF 00-21 (“Revenue Arrangements with Multiple Deliverables”), states that a deliverable should be segmented and accounted for separately from the remainder of the arrangement if: (1) there is objective and reliable evidence of the fair value of the element and (2) the element does not affect the quality of use or the value of the other elements and the element can be purchased from an unrelated vendor without effecting the quality of use or value of the other elements. We believe that the hourly rates charged for development revenues are consistent and represent the fair value of these services.

In most cases, development projects are requested after delivery of online tuition services has begun (i.e. no development work was considered when terms of the online tuition agreement were negotiated). We have demonstrated the ability for our developed and converted material to be used in absence of our platform. In addition, customers can use other vendors to develop electronic course material or develop course material internally for use on our platform. Accordingly, we believe that separate recognition of development revenues for customers who have online tuition contracts is appropriate.

Allowance for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. If the financial condition of those customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required in future periods.

Capitalized Software and Courseware Development Costs

We capitalize costs associated with internally developed software in accordance with Statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use” (SOP 98-1). SOP 98-1 provides guidance for the treatment of costs associated with computer software development and defines those costs to be capitalized and those to be expensed. Costs that qualify for capitalization are external direct costs, payroll, payroll-related costs, and interest costs. Costs related to general and administrative functions are not capitalizable and are expensed as incurred. We capitalize

24

software and courseware development costs when the projects under development reach technological feasibility. Many of our new courses leverage off of proven delivery platforms and are primarily content, which has no technological hurdles. As a result, a significant portion of our courseware development costs qualify for capitalization due to the concentration of our development efforts on the content of the courseware. Technological feasibility is established when we have completed all planning, designing, coding, and testing activities necessary to establish that a course can be produced to meet its design specifications. Capitalization ends when a course is available for general release to our customers, at which time amortization of the capitalized costs begins. Amortization of such costs is based on the greater of (1) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (2) the straight-line method over the remaining economic life of the vcampus or courseware, typically two to three years. It is possible that those anticipated gross revenues, the remaining economic life of the products, or both, may be reduced as a result of future events.

We evaluate capitalized software costs in accordance with the provisions of Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets (as amended)”. In assessing whether there is an impairment issue with respect to capitalized software costs, we determined that there is no reliable basis for estimating future gross revenues related to our capitalized software. However, our capitalized software is expected to continue operations well into the future. As it represents a majority of our business, we do not expect the revenue stream relating to online courses to end and, accordingly, we will continue to make modifications in order for our capitalized software to remain viable. In estimating future expected cash flows (i.e. inflows less outflows) we use historical cash flows that are directly associated with the online tuition revenue and an estimate of the outflows that are expected to arise as a direct result of the use and eventual disposition of the asset.

We evaluate capitalized courseware development costs at least annually or more frequently if events or changes in circumstances indicate that the asset might be impaired, to determine if the unamortized balance related to any given course exceeds the estimated net realizable value of that course. Estimating net realizable value requires us to estimate future revenues and cash flows to be generated by the course and to use judgment in quantifying the amount, if any, to be written off. We consider courseware development costs impaired when the carrying amount is not recoverable and exceeds the asset’s fair value. The carrying amount is deemed unrecoverable if it is greater than the sum of undiscounted cash flows expected to result form use and eventual disposition of the asset. We recognize an impairment charge equal to the excess of the carrying amount over the fair value of the asset.

In estimating future cash flows (i.e., inflows less outflows) we use only those directly associated with the use and ultimate disposition of the underlying asset. In estimating future cash flows to test for recoverability we take all available evidence into account based on our planned usage of the underlying asset and use assumptions consistent with those used to develop other information (i.e., internal projections, forecasts, and budgets). The period over which cash flows are projected is based on the remaining useful life of the underlying asset. As a result of our analysis, we recorded provisions for impairment relating to capitalized courseware development costs.

Goodwill and Other Identifiable Intangibles

Management assesses the recoverability of goodwill and other identifiable intangibles whenever events or changes in circumstances indicate that the carrying value may not be recoverable. When management determines that the carrying value of goodwill or other identifiable intangibles is not recoverable, an impairment loss is recognized to the extent the carrying value of the asset exceeds its fair value. Fair value can be estimated using a number of techniques including quoted market prices, valuations by third parties and discounted cash flow analysis. The fair value of the asset could be different using different estimates and assumptions in these valuation techniques.

25

In accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangibles,” goodwill and other indefinite-lived intangibles are subject to an annual impairment review. We may determine through the impairment review process that goodwill or other indefinite-lived intangibles have been impaired, resulting in an impairment charge in the period the review is completed.

Derivative financial instruments

We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

We review the terms of convertible debt and equity instruments that we issue to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. When the risks and rewards of any embedded derivative instrument are not “clearly and closely” related to the risks and rewards of the host instrument, the embedded derivative instrument is generally required to be bifurcated and accounted for separately. If the convertible instrument is debt, or has debt-like characteristics, the risks and rewards associated with the embedded conversion option are not “clearly and closely” related to that debt host instrument. The conversion option has the risks and rewards associated with an equity instrument, not a debt instrument, because its value is related to the value of our common stock. Nonetheless, if the host instrument is considered to be “conventional convertible debt” (or “conventional convertible preferred stock”), bifurcation of the embedded conversion option is generally not required. However, if the instrument is not considered to be conventional convertible debt (or conventional convertible preferred stock), bifurcation of the embedded conversion option may be required in certain circumstances. Generally, where the ability to physical or net-share settle the conversion option is deemed to be not within the control of us, the embedded conversion option is required to be bifurcated and accounted for as a derivative financial instrument liability.

In connection with the sale of convertible debt and equity instruments, we may also issue freestanding options or warrants. Additionally, we may issue options or warrants to non-employees in connection with consulting or other services they provide. Although the terms of the options and warrants may not provide for net-cash settlement, in certain circumstances, physical or net-share settlement may be deemed to not be within the control of the us and, accordingly, we may be required to account for these freestanding options and warrants as derivative financial instrument liabilities, rather than as equity.

Derivative financial instruments are required to be initially measured at their fair value. For derivative financial instruments that shall be accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

In circumstances where the embedded conversion option in a convertible instrument may be required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

If the embedded derivative instrument is to be bifurcated and accounted for as a liability, the total proceeds received will be first allocated to the fair value of the bifurcated derivative instrument. If freestanding options or warrants were also issued and are to be accounted for as derivative instrument liabilities (rather than as equity), the proceeds are next allocated to the fair value of those instruments. The remaining proceeds, if any, are then allocated to the convertible instrument itself, usually resulting in that instrument being recorded at a discount from its face amount. In circumstances where a freestanding derivative instrument is to be accounted for as an equity instrument, the proceeds are allocated between the convertible instrument and the derivative equity instrument, based on their relative fair values.

26

To the extent that the fair values of the bifurcated and/or freestanding derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is required to be recognized, in order to initially record the derivative instrument liabilities at their fair value. The discount from the face value of the convertible debt instrument is required to be amortized over the life of the instrument through periodic charges to income, using the effective interest method. When the instrument is convertible preferred stock, the periodic amortization of the discount is charged directly to retained earnings.

We review the classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, at the end of each reporting period. Derivative instrument liabilities are required to be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. We currently do not have any derivative instruments that are required to be bifurcated and recorded as liabilities.

Results of Operations

The following table sets forth certain statement of operations data as a percentage of total net revenues for the periods indicated:

	2003		2004		2005
Statement of Operations Data:
Revenues:
Online tuition revenues	90.8	%	92.5	%	88.6	%
Development and other revenues	7.4		6.5		11.4
Other service revenues	1.8		1.0		0.0
Total net revenues	100.0		100.0		100.0
Costs and expenses:
Cost of revenues	28.3		27.9		37.9
Sales and marketing	35.2		39.0		37.8
Product development and operations	40.8		56.0		58.0
General and administrative	31.5		34.7		32.6
Depreciation and amortization	14.5		25.2		34.5
Reorganization and other non-recurring charges and stock based compensation	5.0		3.2		2.4
Total costs and expenses	155.3		186.0		203.2
Loss from operations	(55.3	)	(86.0	)	(103.2	)
Other income (expense):
Other income	3.4		3.8		0.0
Interest expense	(1.8	)	(53.1	)	(25.3	)
Net loss	(53.7	)%	(135.3	)%	(128.5	)%

2005 Compared to 2004

Summary

We incurred a net loss attributable to common stockholders of $5,880,639 (or $0.63 per share) in 2005 as compared to a net loss attributable to common stockholders of $6,579,416 (or $0.97 per share) in 2004. The net loss for the twelve months ended December 31, 2005 includes $1,060,057 of non-cash amortization of debt discount and debt offering costs. The net loss for the twelve months ended December 31, 2004 includes $2,430,849 of non-cash amortization of debt discount and debt offering costs and $183,210 of other income as a result of settlements with a customer and two vendors. The decrease in the net loss in 2005 as compared to 2004 was due primarily to a decrease in interest expense and, to a lesser extent,

27

operating costs, which were partially offset by a 6% decrease in revenues and a 28% increase in cost of revenues.

The following table sets forth selected financial data:

	For the Year Ended December 31,
	2004					2005
Revenues	$	4,863,859		100.0	%	$	4,564,463		100.0	%
Cost of revenues	1,356,699			27.9		1,730,892			37.9
Sales and marketing	1,895,340			39.0		1,723,313			37.8
Product development and operations	2,725,155			56.0		2,649,215			58.0
General and administrative	1,686,940			34.7		1,488,240			32.6
Depreciation and amortization	1,227,089			25.2		1,574,242			34.5
Stock-based compensation	153,973			3.2		109,493			2.4
Loss from operations	(4,181,337		)	(86.0	)	(4,710,932		)	(103.2	)
Other income	183,210			3.8		—			0.0
Interest expense	(2,581,289		)	(53.1	)	(1,155,395		)	(25.3	)
Net loss	(6,579,416		)	(135.3	)	(5,866,327		)	(128.5	)
Dividends to preferred stockholders	—			0.0		(14,312		)	(0.3	)
Net loss attributable to common stockholders	$	(6,579,416	)	(135.3	)%	$	(5,880,639	)	(128.8	)%

	For the Year Ended December 31,
	2004				2005
Online tuition revenues	$	4,497,513	92.5	%	$	4,045,979	88.6	%
Online development and other revenues	318,456		6.5		518,484		11.4
Other service revenues	47,890		1.0		—		0.0
Total net revenues	$	4,863,859	100.0	%	$	4,564,463	100.0	%

Online tuition revenues decreased 10.0% to $4,045,979 in 2005, compared to $4,497,513 in 2004. The decrease is primarily due to a decrease in revenue from higher education customers (decrease of $1,220,000), and more specifically from Park University, which was partially offset by increases in revenues from Select Partners, corporate and government customers (increases of $492,000, $265,000 and $11,000, respectively).

Online development and other revenues increased 62.8% to $518,484 in 2005, compared to $318,456 in 2004. The increase is primarily due to an increase in course development and professional services orders including a large courseware order from a Select Partner in 2005.

Other service revenues were $47,890 for twelve months ended December 31, 2004. Our contract with the U.S. Army, under which all licensing and support revenues were generated, was completed in May 2004. Accordingly, we ceased recognizing licensing and support revenues after that date.

Cost of Revenues

Cost of revenues increased 27.6% to $1,730,892 in 2005 as compared to $1,356,699 in 2004. The increase is primarily due to the fact that as we continue to build our Select Partner courseware library, we replaced part of the former Park University revenues with revenues from readily available third-party content courses which carry royalty costs. The increase is also due to the increase in costs associated with an increase in development and other revenues which increased in the twelve months ended December 31, 2005 compared to the same period in 2004.

28

Operating Expenses

Sales and Marketing.Sales and marketing expenses decreased 9.1% to $1,723,313 in 2005 compared to $1,895,340 in 2004. The decrease is primarily attributable to decreased headcount and related costs and, to a lesser extent, a decrease in out-of-pocket costs in sales and marketing in the twelve months ended December 31, 2005 as we gain more experience in and streamline our marketing activities associated with our Select Partner program.

Product Development and Operations.Product development and operations expenses decreased 2.8% to $2,649,215 in 2005 compared to $2,725,155 in 2004. The decrease is primarily due to decreases in headcount and related costs as well as out-of-pocket costs. The decrease was partially offset by the fact that following the release of our new course management system in the first quarter of 2004, we did not capitalize any software development costs (due to their nature) in the first quarter of 2005, whereas in the first quarter of 2004, software development costs had been capitalized.

General and Administrative.General and administrative expenses decreased 11.8% to $1,488,240 in 2005 as compared to $1,686,940 in 2004. The decrease is primarily due to the payment of incentive compensation amounts to employees in the second quarter of 2004 which did not occur in the 2005 period. The decrease was also due to reductions in legal, accounting and other professional fees as well as other overhead costs due to reductions in headcount and our efforts to monitor and reduce costs where possible.

Depreciation and Amortization.Depreciation and amortization expense increased 28.3% to $1,574,242 in 2005 as compared to $1,227,089 in 2004. The increase is primarily due to the release of our enhanced Course Management System in the first quarter of 2004 as a result of which we began amortizing costs we had capitalized for its development, the release of new Select Partner courses and the resulting amortization of capitalized costs incurred for their development and the write off or write down of capitalized costs incurred for the development of nine courses during the 2005 period to their estimated net realizable value as a result of impairment analyses.

Stock-based Compensation.Stock-based compensation expense for 2005 and 2004 consists of the fair value of stock issued as customary payment to our non-employee directors for their participation in Board of Directors and Board Committee meetings and the fair market value of stock issued to consultants. Under new accounting standards that became effective on January 1, 2006, we must record compensation expense in our financial statements for stock options and other equity-based awards granted to employees. Accordingly, we expect our stock-based compensation expense to materially increase in future periods.

Interest Expense.Interest expense for 2005 and 2004 primarily consists of amortization of debt discount and deferred debt offering costs and interest related to the $3,649,625 (as reduced to $1,385,390 following mandatory and voluntary conversions and payments of principal through December 31, 2005) of convertible promissory notes issued in March 2004.

Other Income.Other income for 2004 consists of amounts recorded in connection with the settlements with Park University and two of our content providers which resulted in the write-off of royalty obligations.

2004 Compared to 2003

Summary

We incurred a net loss attributable to common stockholders of $6,579,416 (or $0.97 per share) in 2004 as compared to a net loss attributable to common stockholders of $6,185,877 (or $1.81 per share) in 2003. The increase in the net loss in 2004 as compared to 2003 was due primarily to a decrease in online tuition revenues and an increase in interest expense, partially offset by the absence of dividends to preferred stockholders in 2004 ($2,926,854 of such dividends were included in the net loss attributable to common

29

stockholders for 2003). The decrease in net loss per share for 2004 compared to 2003 was due to the issuance of additional shares in 2004.

The following table sets forth selected financial data:

	For the Year Ended December 31,
	2003					2004
Revenues	$	6,066,035		100.0	%	$	4,863,859		100.0	%
Cost of revenues	1,718,340			28.3		1,356,699			27.9
Sales and marketing	2,137,791			35.2		1,895,340			39.0
Product development and operations	2,474,856			40.8		2,725,155			56.0
General and administrative	1,909,814			31.5		1,686,940			34.7
Depreciation and amortization	879,966			14.5		1,227,089			25.2
Reorganization and other non-recurring charges	172,729			2.9		—			0.0
Stock-based compensation	126,056			2.1		153,973			3.2
Loss from operations	(3,353,517		)	(55.3	)	(4,181,337		)	(86.0	)
Other income	207,138			3.4		183,210			3.8
Interest expense	(112,644		)	(1.8	)	(2,581,289		)	(53.1	)
Net loss	(3,529,023		)	(53.7	)	(6,579,416		)	(135.3	)
Dividends to preferred stockholders	(2,926,854		)	(48.3	)	—			0.0
Net loss attributable to common stockholders	$	(6,185,877	)	(102.0	)%	$	(6,579,416	)	(135.3	)%

	For the Year Ended December 31,
	2003				2004
Online tuition revenues	$	5,508,154	90.8	%	$	4,497,513	92.5	%
Online development and other revenues	448,082		7.4		318,456		6.5
Other service revenues	109,799		1.8		47,890		1.0
Total net revenues	$	6,066,035	100.0	%	$	4,863,859	100.0	%

Online tuition revenues decreased 18.3% to $4,497,513 in 2004, compared to $5,508,154 in 2003. The decrease is primarily due to a decrease in revenue from higher education customers, and more specifically from Park University (decrease of $1,101,000) and corporate customers (decrease of $197,000), which was partially offset by an increase in revenue from government customers and Select Partners (increases of $101,000 and $187,000, respectively).

Online development and other revenues decreased 28.9% to $318,456 in 2004, compared to $448,082 in 2003. The decrease is primarily due to a decline in course development and professional services orders. As we move away from developing and hosting courses that are proprietary to our customers to the co-development of courses under our Select Partner strategy, for which we typically do not charge our Select Partners development fees, we expect development revenues to continue to remain a relatively small component of our total revenues. However, we generally receive a relatively higher percentage of the revenue from the sale of Select Partner courses, in lieu of such foregone development fees.

Other service revenues decreased 56.4% to $47,890 in 2004, compared to $109,799 in 2003. Our contract with the U.S. Army, under which all licensing and support revenues were generated, was completed in May 2004. Accordingly, we stopped recognizing licensing and support revenues under this contract following that date.

Cost of Revenues

Cost of revenues decreased 21.0% to $1,356,699 in 2004 as compared to $1,718,340 in 2003. The decrease was primarily due to the sale of a higher percentage of courses with relatively lower associated royalty costs.

30

Operating Expenses

Sales and Marketing.Sales and marketing expenses decreased 11.3% to $1,895,340 in 2004 compared to $2,137,791 in 2003. Excluding the Park Development Fund contribution in 2003, which did not recur in 2004 as a result of the non-renewal of our contract with Park University in May 2004, sales and marketing expenses were $1,895,340 and $1,762,035 for 2004 and 2003, respectively, an increase of 7.6%. The increase was primarily attributable to out-of-pocket costs in sales and marketing associated with the implementation and support for our Select Partner program in 2004.

Product Development and Operations.Product development and operations expenses increased 10.1% to $2,725,155 in 2004 compared to $2,474,856 in 2003. The increase was due to the fact that following the release of our new course management system in the first quarter of 2004, we did not capitalize any software development costs (due to their nature) in the last three quarters of 2004, whereas in 2003, software development costs had been capitalized.

General and Administrative.General and administrative expenses decreased 11.7% to $1,686,940 in 2004 as compared to $1,909,814 in 2003. The decrease was primarily due to the expiration of the employment agreement and related termination of employment of our Vice Chairman in December 2003 and the absence (in 2004) of legal and accounting costs incurred in 2003 associated with the SEC review, in the ordinary course, of the company’s public filings.

Depreciation and Amortization.Depreciation and amortization expense increased 39.4% to $1,227,089 in 2004 as compared to $879,966 in 2003. The increase was primarily due to the release of our new Course Management System in the first quarter of 2004, as well as the release of a number of Select Partner courses, as a result of which we began amortizing costs we had capitalized for their development.

Reorganization and Other Charges.Reorganization and other charges of $172,729 in 2003 consist of amounts paid in excess of prior accruals to satisfy in full all liabilities in connection with the termination of the Rockville, Maryland facility lease and our other recent legal settlements.

Stock-based Compensation.Stock-based compensation expense for 2004 and 2003 consists of the fair value of stock issued as customary payment to our non-employee directors for their participation in Board of Directors and Board Committee meetings and the fair market value of stock issued to consultants.

Interest Expense.Interest expense for 2003 primarily consists of amortization of debt discount and deferred debt offering costs related to the remaining balance of the $925,000 of convertible promissory notes issued in December 2001. Interest expense for 2004 primarily consists of amortization of debt discount and deferred debt offering costs and accrual of interest payable related to the $3,649,625 ($2,137,500 following mandatory and voluntary partial conversions in the second, third and fourth quarters of 2004) of convertible promissory notes issued in March 2004.

Other Income.Other income for 2003 consists of the write-off of royalty obligations to one of our former content providers following the expiration of the relevant statute of limitations for bringing any action to enforce the obligations. Other income for 2004 consists of amounts recorded in connection with the settlements with Park University and two of our content providers which resulted in the write-off of royalty obligations.

Liquidity and Capital Resources

At December 31, 2005, we had $2,488,159 in cash and cash equivalents, compared to $2,632,504 at December 31, 2004. The decrease in cash and cash equivalents during 2005 is principally due the net loss recorded as reduced by cash raised in the March 2005 common stock and December 2005 preferred stock financings. Since our inception, we have financed our operating cash flow needs primarily through offerings of equity and debt securities and, to a lesser extent, borrowings. Cash utilized in operating

31

activities was $2,188,886 in 2005 and $3,408,927 in 2004. The decrease in cash utilized in operating activities is primarily due to the paydown of accounts payable balances in the 2004 period following our March 2004 private placement, partially offset by an increase in our accounts payable from $575,183 at December 31, 2004 to $1,182,585 at December 31, 2005 which was mainly due to the timing of payments for certain large payables.

Cash utilized in investing activities was $678,464 in 2005 and $1,127,333 in 2004. The use of cash for investing activities in both periods is primarily attributable to courseware development costs that were capitalized and the purchase of computer equipment as we continue to maintain and upgrade our technological infrastructure. The use of cash for investing activities for twelve months ended December 31, 2004 was also attributable to software development costs that were capitalized. The decrease in cash utilized in investing activities is primarily due to the fact that for the twelve months ended December 31, 2004, we had capitalized $329,347 of software development costs whereas, due to their nature, we fully expensed such costs in the 2005 period, and therefore, they were not included in cash utilized in investing activities in the 2005 period.

Cash provided by financing activities was $2,723,005 in 2005 and $6,633,780 in 2004.

In March 2005, we completed a private placement of our common stock. Under the terms of this private placement, we raised $995,950 in gross proceeds through the issuance of 611,012 shares of common stock at a purchase price of $1.63 per share. Under the terms of this financing, we also issued five-year warrants to purchase 763,765 shares of common stock with an exercise price of $1.63 per share.

In December 2005, we completed a private placement of Series A-1 convertible Preferred Stock. Under the terms of this financing, we raised $2,300,000 in gross proceeds through the issuance of 2,300 shares of Series A-1 convertible Preferred Stock at a purchase price of $1,000 per share to accredited investors. Under the terms of this financing, we also issued warrants to purchase 1,032,929 shares of common stock to the same accredited investors at an exercise price per share equal to the then applicable conversion price of the Series A-1 Preferred Stock. The shares of Series A-1 Preferred Stock are initially convertible into common stock at a conversion price of $1.67 per share. The conversion price is subject to a price reset on March 31, 2006 to equal $0.61 per share in the event that before March 31, 2006 the common stock does not trade at or above $6.00 per share for at least ten consecutive trading days after the shares of common stock issued or issuable in the financing have been registered for resale under a registration statement declared effective by the SEC. The conversion price is subject to further adjustment to $0.50 per share upon shareholder approval of the Series A-1 Preferred Stock financing. We intend to solicit shareholder approval for the financing at our 2006 annual meeting scheduled for May 2006. The exercise price of the warrants and the number of shares issuable thereunder are subject to adjustment upon any change to the conversion price of the Series A-1 Preferred Stock.

In March 2006, we completed a private placement of Series B-1 convertible Preferred Stock. Under the terms of this financing, we raised $2,300,000 in gross proceeds through the issuance of 2,300 shares of Series B-1 convertible Preferred Stock at a purchase price of $1,000 per share to two accredited investors, one of whom is Barry Fingerhut, our largest beneficial stockholder. Under the terms of this financing, we also issued ten-year warrants to purchase 1,000,000 shares of common stock to the same accredited investors at an exercise price per share equal to the then applicable conversion price of the Series B-1 Preferred Stock. The warrants are first exercisable commencing four years from their issuance date. Beginning three years from their date of issuance, the shares of Series B-1 Preferred Stock are convertible, at the option of their holders, into common stock based on a formula that yields a discount of between 10% and 37.5% to the last closing bid price of the common stock prior to the date of conversion, subject to a price floor of $1.64 per share. The shares of Series B-1 Preferred Stock are entitled to receive dividends paid quarterly at the greater of: (a) an annual rate of 16%, or (b) 6% of the net sales proceeds from two courses to be mutually agreed upon by the parties. Each share of Series B-1 Preferred Stock has a

32

liquidation preference equal to 150% of the purchase price paid for the share. The shares of Series B-1 Preferred Stock are non-voting. We intend to solicit shareholder approval for the financing at our 2006 annual meeting scheduled for May 2006. The proceeds are intended to be used for general corporate purposes.

We have incurred significant losses since inception and had an accumulated deficit of $102.9 million as of December 31, 2005. We expect negative cash flow from operations to continue until our Select Partner business model matures. Management’s plans to address these conditions include pursuing additional capital and continued focus on increasing sales to new customers through the Select Partner program, which have partially replaced the sales related to the large legacy customer lost in 2004. Management anticipates the increase in sales experienced in 2005 under the Select Partner program to continue into 2006. Management has also instituted cost cutting measures and operates under an approved budget, which is closely monitored. However, in the event revenues do not meet anticipated levels or we are unable to raise additional funding to meet working capital requirements, we may need to further significantly reduce operating expenses which might in turn impact our ability to meet projected sales levels.

We have an obligation to repay principal and interest under our convertible notes that began in July 2005. The total outstanding principal remaining under these convertible notes as of December 31, 2005 amounted to $1,385,390. Cash payments for principal under these notes are approximately $99,000 per quarter through the maturity date in April 2009, unless such notes are sooner converted to common stock or restructured. Initial cash payments for interest under these notes are approximately $36,000 per quarter beginning July 1, 2005 and will gradually be reduced as the principal is paid down. We made our first three installments of principal and interest in July and October 2005 and January 2006 and the next installment is due in April 2006. In February 2006, holders of a majority of these notes notified us that they believe an event of default exists under the notes based on our failure to acknowledge their alleged right to have the conversion price on their notes reduced from $1.63 per share to $0.50 per share, which is the lowest potential reset conversion price for the Series A-1 Preferred Stock we issued to other investors in the December 2005 financing. We dispute the claims made by the note holders for a number of reasons, including the fact that their antidilution rights expire, pursuant to the express terms of the notes and warrants, prior to the price reset date on March 31, 2006, and hence they expire prior to the happening of the alleged event or contingency that might otherwise trigger their rights. Consequently, we believe the note holders’ allegations are without merit. Although we firmly believe no event of default has occurred, we intend to pursue negotiations with the note holders in an effort to reach an amicable resolution of the matter. If we are unable to resolve the dispute and in the event the note holders were successful in pursuing their claims, they would thereafter be entitled to formally declare a default and immediately accelerate the entire amount of the indebtedness and pursue their rights as the senior secured creditor with respect to our assets. The note holders would also be entitled to any other remedies they might have available under the notes and applicable law, including money damages and/or conversion of their indebtedness and exercise their warrants for shares of common stock at the reduced price (which, in any event, should be no lower than $0.61, instead of $0.50). The note holders hold warrants for the purchase of 978,533 shares of common stock.

We are obligated to pay a quarterly dividends at an annual rate of 10% on the Series A-1 Preferred Stock so long as it is outstanding. Based on the 2,342 shares of Series A-1 Preferred Stock that were issued and remain outstanding through the date of this report, we are obligated to pay $234,200 per year in dividends to our Preferred Stockholders.

We are obligated to pay dividends to our Series B-1 Preferred Stockholders so long as the Series B-1 Preferred Stock is outstanding. Dividends are due quarterly at the greater of: (a) an annual rate of 16%, or (b) 6% of the net sales proceeds from two courses to be mutually agreed upon by the parties.

33

If we are not able to address our funding needs and repayment obligations or if we were not successful in defending against or settling the claims of default under our outstanding notes, we could be materially adversely affected. Our future capital requirements will depend on many factors, including, but not limited to, acceptance of and demand for our products and services including the Select Partner business model, capital requirements associated with our acquisition plans, market demands for technology upgrades, possible restructuring or early repayment of our indebtedness, the types of arrangements that we may enter into with customers and agents, and the extent to which the we invest in Select Partner courseware development, new technology and research and development projects. While we believe we have the ability to raise additional capital, our ability to raise capital in the near term is uncertain. If we are unable to raise additional funding to meet working capital requirements and if the bid price of our common stock does not close at or above $1.00 for a minimum of ten consecutive business days, we may also be unable to meet Nasdaq Capital Market listing requirements and we might not be able to achieve our business objectives. VCampus believes it has available capital on hand and sources for additional debt and equity capital in amounts necessary to meet its cash needs in 2006. However, additional capital, if needed and available, may not have terms favorable to us or our current stockholders.

As of December 31, 2005, we had net operating loss carryforwards of approximately $69.7 million for federal income tax purposes, which will expire at various dates through 2025. Our ability to utilize all of our net operating loss and credit carryforwards may be limited by changes in ownership. Specifically, management believes that deemed changes in ownership resulting from our recent equity financings will likely prevent us from using part or all of the net operating losses and credit carryfowards under the IRS change in ownership rules. We have recognized a full valuation allowance against these deferred tax assets because we have determined that it is more likely than not that sufficient taxable income will not be generated during the carryforward period available under the tax law to utilize the deferred tax assets.

Contractual Obligations

Our future liquidity and capital resources will be affected by our contractual obligations. Our significant contractual obligations as of December 31, 2005 are for debt and operating leases. These obligations are summarized as follows:

	Payments Due by Period
Contractual Obligations	Total		2006		2007 – 2009		2010 – 2012			2013 and Thereafter
Notes payable(1)	$	1,385,390	$	395,826	$	989,564		$	—		$	—
Operating leases	2,361,381		540,778		1,721,635			98,968			—
Total contractual obligations	$	3,746,771	$	936,604	$	2,711,199		$	98,968		$	—

(1)In March 2004, we raised $5,000,000 in gross cash proceeds through the private placement of 20 units, at a purchase price of $200,000 per unit, and Series B senior secured convertible notes in the aggregate principal amount of $1,000,000. Each unit consisted of 50,000 shares of common stock (initially priced at $1.63 per share), a Series A senior secured convertible note in the original principal amount of $118,500 and a five-year warrant to purchase 61,350 shares of common stock. We issued an additional $250,000 of Series B senior secured notes in exchange for cancellation of existing short-term indebtedness in that amount. Upon approval of the private placement by VCampus’ stockholders at our annual meeting in May 2004, $18,500 of principal of each of the Series A notes was converted into common stock at $1.63 per share and $100,000, or 50%, in principal of each of the Series B notes was converted into common stock at $1.63 per share. The total principal amount for both Series converted upon approval of the stockholders was $999,625. Therefore, following stockholder approval, a total of $2,650,000 of the placement was recorded as equity and $2,650,000 as senior debt. The notes mature in April 2009 and bear interest at the rate of 8% per annum payable quarterly in cash or stock (valued at the conversion price) at our option for the first year. Principal

34

and interest on the notes are payable in cash over the following four years in quarterly installments. During 2004, an additional $512,500 of Series A and Series B senior secured convertible note principal was converted into 314,420 shares of common stock, resulting in $1,512,125 of aggregate principal from this financing converted as of the end of 2004. During 2005, an additional $541,809 of Series A and Series B senior secured convertible note principal was converted into 332,398 shares of common stock, resulting in $2,053,934 of aggregate principal from this financing converted as of the end of 2005.

Recent Accounting Pronouncements

In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, or SFAS 123(R), which is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation” (as amended) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Generally the approach in SFAS 123(R) is similar to the approach described in SFAS No. 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative upon adopting SFAS 123(R).

We adopted SFAS 123(R) on January 1, 2006. SFAS 123(R) permits public companies to adopt its requirements using one of two methods:

The “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123(R) for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date; or

The “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123(R) for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

We will implement SFAS 123(R) in the first quarter of 2006 and intend to use the “modified prospective method”. We believe the pro forma disclosures in note 2, “Summary of Significant Accounting Policies,” of the consolidated financial statements under the sub-heading “Stock-Based Compensation” provide an appropriate short-term indicator of the level of expense that will be recognized in accordance with SFAS 123(R) for stock options granted prior to January 1, 2006 plus the expense related to stock options granted during 2006. The expense for stock options granted during 2006 cannot be determined at this time due to the uncertainty of our stock price, the related Black-Scholes fair value and the timing of future grants.

In June 2005, the FASB ratified EITF Issue No. 05-2, “The Meaning of ‘Conventional Convertible Debt Instrument’ in EITF Issue No. 00-19, ‘Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock’” (“EITF No. 05-2”), which addresses when a convertible debt instrument should be considered “conventional” for the purpose of applying the guidance in EITF No. 00-19. EITF No. 05-2 also retained the exemption under EITF No. 00-19 for conventional convertible debt instruments and indicated that convertible preferred stock having a mandatory redemption date may qualify for the exemption provided under EITF No. 00-19 for conventional convertible debt if the instrument’s economic characteristics are more similar to debt than equity. EITF No. 05-2 is effective for new instruments entered into and instruments modified in periods beginning after June 29, 2005. We have applied the requirements of EITF No. 05-2 since the required implementation date.

35

In September 2005, the FASB ratified the following consensus reached in EITF Issue 05-8 (“Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature”): a) the issuance of convertible debt with a beneficial conversion feature results in a basis difference in applying FASB Statement of Financial Accounting Standards SFAS No. 109, Accounting for Income Taxes. Recognition of such a feature effectively creates a debt instrument and a separate equity instrument for book purposes, whereas the convertible debt is treated entirely as a debt instrument for income tax purposes. b) the resulting basis difference should be deemed a temporary difference because it will result in a taxable amount when the recorded amount of the liability is recovered or settled. c) recognition of deferred taxes for the temporary difference should be reported as an adjustment to additional paid-in capital. This consensus is effective in the first interim or annual reporting period commencing after December 15, 2005, with early application permitted. The effect of applying the consensus should be accounted for retroactively to all debt instruments containing a beneficial conversion feature that are subject to EITF Issue 00-27, “Application of Issue No. 98-5 to Certain Convertible Debt Instruments” (and thus is applicable to debt instruments converted or extinguished in prior periods but which are still presented in the financial statements). The adoption of this pronouncement is not expected to have a material impact on our consolidated financial statements.

In February 2006, the FASB issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments”. This Statement amends FASB Statements No. 133, Accounting for Derivative Instruments and Hedging Activities, and No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.  This Statement resolves issues addressed in Statement 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 permits fair value remeasurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation, clarifies which interest-only strips and principal-only strips are not subject to the requirements of Statement 133, and establishes a requirement to evaluate interests in securitized financial assets to identify interests that are freestanding derivatives or that are hybrid financial instruments that contain an embedded derivative requiring bifurcation. It also clarifies that concentrations of credit risk in the form of subordination are not embedded derivatives and amends Statement 140 to eliminate the prohibition on a qualifying special-purpose entity from holding a derivative financial instrument that pertains to a beneficial interest other than another derivative financial instrument. This Statement is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company has not yet determined the impact of the adoption of FAS 155 on its financial statements, if any.

36

Item 7A.Quantitative and Qualitative Disclosures About Market Risk.

Our exposure to market risk for changes in interest rates is currently very minimal and relates primarily to any investments we may hold at various times. When investing, our purchases consist of highly liquid investments with maturities at the date of purchase generally no greater than 90 days and rarely ever more than twelve months, thus, due to the short-term nature of such investments and our usual intention to hold these investments until maturity, the impact of interest rate changes would not have a material impact on our results of operations. In addition, essentially all of our debt obligations are at fixed interest rates. Given the fixed rate nature of the debt, the impact of interest rate changes also would not have a material impact on our results of operations.  We are not currently exposed to any material currency translation risks.

Item 8.Financial Statements and Supplementary Data.

The information required by this item is included in this Report at pages F-1 through F-35. See Index to Consolidated Financial Statements on page F-1.

Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

Not applicable.

Item 9A.Controls and Procedures.

(a)Disclosure Controls and Procedures:   Disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) are designed only to provide reasonable assurance that they will meet their objectives. As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are effective to provide the reasonable assurance discussed above.

(b)Internal Control Over Financial Reporting:   No change in the Company’s internal control over financial reporting occurred during the Company’s last fiscal quarter that has material affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.Other Information.

None.

37

PART III

Certain information required by Part III is omitted from this report because the Registrant intends to file a definitive proxy statement for its 2006 Annual Meeting of Stockholders (the “Proxy Statement”) within 120 days after the end of its fiscal year pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934, as amended, and the information included therein is incorporated herein by reference to the extent provided below.

Item 10.Directors and Executive Officers of the Registrant.

The information required by Item 10 of Form 10-K concerning the Registrant’s executive officers is set forth under the heading “Executive Officers” located at the end of Part I of this Report.

The Board of Directors has determined that the members of the Audit Committee are independent as defined in Rule 4200(a)(15) of the National Association of Securities Dealers’ listing standards. The Board of Directors has determined that Martin Maleska is an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K.

The Board of Directors has adopted a code of conduct that applies to all of our directors and employees. Our Board has also adopted a separate code of conduct for our Chief Executive Officer, Chief Financial Officer and Controller, or persons performing similar functions. We will provide copies of our codes of conduct without charge upon request. To obtain a copy of our codes of conduct, please send your written request to VCampus Corporation, 1850 Centennial Park Drive, Suite 200, Reston, VA 20191, Attention: Chief Financial Officer.

The other information required by Item 10 of Form 10-K concerning the Registrant’s directors is incorporated by reference to the information under the headings “Proposal No. 1—Election of Directors” and “Other Information—Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement.

Item 11.Executive Compensation.

The information required by Item 11 of Form 10-K is incorporated by reference to the information under the heading “Proposal No. 1—Election of Directors—Corporate Governance Matters”, “Other Information—Executive Compensation”, “—Compensation of Directors”, “—Employment Agreements”, “—Report of the Compensation Committee on Executive Compensation”, “—Compensation Committee Interlocks and Insider Participation” and “—Performance Graph” in the Proxy Statement.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The information required by Item 12 of Form 10-K is incorporated by reference to the information under the heading “Other Information—Principal Stockholders” and “Other Information—Equity Compensation Plan Information” in the Proxy Statement.

Item 13.Certain Relationships and Related Transactions.

The information required by Item 13 of Form 10-K is incorporated by reference to the information under the heading “Other Information—Certain Transactions” in the Proxy Statement.

Item 14.Principal Accounting Fees and Services

The information required by Item 14 of Form 10-K is incorporated by reference to the information under the heading “Principal Accounting Fees and Services” in the Proxy Statement.

38

PART IV

Item 15.Exhibits and Financial Statement Schedules.

(a)   The following Financial Statements, Financial Statement Schedules and Exhibits are filed as part of this report or incorporated herein by reference:

(1)Financial Statements.

See Index to Consolidated Financial Statements on page F-1.

(2)Financial Statement Schedules.

The following financial statement schedule is filed with this report: Schedule II—Valuation and Qualifying Account and Reserve

All other financial statement schedules for which provision is made in Regulation S-X are omitted because they are not required under the related instructions, are inapplicable, or the required information is given in the financial statements, including the notes thereto and, therefore, have been omitted.

(b)   Exhibits.

Exhibit No.	Description
3.1(e)	Amended and Restated Certificate of Incorporation, as currently in effect.
3.2(a)	Amended and Restated Bylaws, as currently in effect.
4.1(a)	Form of Common Stock certificate.
10.9(a)**	1996 Stock Plan
10.60(b)	Warrant issued to the purchasers dated as of May 29, 2001.
10.61(b)	Warrant issued to the placement agent for the May 29, 2001 private placement.
10.67(c)	Form of warrant issued in connection with the Series F, F-1 and F-2 preferred stock financings
10.68(d)**	Employment Agreement, dated June 3, 2002, with Christopher L. Nelson
10.79(f)	Form of Warrant issued on September 30, 2002 to the purchasers of Series G Preferred Stock.
10.84(i)	Form of warrant issued to the Series H holders on May 13, 2003.
10.85(i)	Registration Rights Agreement dated May 13, 2003 relating to the Series H financing.
10.88(j)**	Amended employment agreement between VCampus and Christopher L. Nelson dated June 25, 2003.
10.90(j)	Form of warrant issued in connection with the conversion of VCampus preferred stock.
10.91(p)	Purchase Agreement dated March 23, 2004 for the $5.3 million private placement
10.92(p)	Form of Series A Senior Secured Convertible Note issued on March 23, 2004
10.93(p)	Form of Series B Senior Secured Convertible Note issued on March 23, 2004

39

10.94(p)	Form of Warrant issued on March 23, 2004 in connection with the $5.3 million private placement
10.95(p)	Registration Rights Agreement dated March 23, 2004 entered into in connection with the $5.3 million private placement
10.96(p)	Security Agreement dated March 23, 2004 entered into in connection with the $5.3 million private placement
10.97(k)*	Content Client License Agreement between VCampus and Net Dimensions Limited dated February 24, 2004
10.98(k)	Settlement Agreement and Release between VCampus and Park University dated May 3, 2004
10.99(l)	VCampus’ standard form of Online Content Conversion and Distribution Agreement (also known as the form of Select Partner Agreement)
10.100(m)	Form of Subscription Agreement, dated March 30, 2005, between VCampus and each of the Purchasers
10.101(m)	Registration Rights Agreement, dated March 30, 2005, among VCampus and the Purchasers.
10.102(m)	Form of Warrant issued by VCampus to each of the Purchasers on March 30, 2005.
10.103(n)	Form of Subscription Agreement for December 2005 financing
10.104(n)	Form of Warrant for December 2005 financing
10.105(n)	Registration Rights Agreement for December 2005 financing
10.106(n)	Certificate of Designations of the Series A-1 Convertible Preferred Stock
10.107(o)**	Employment Agreement with Narasimhan P. Kannan dated December 30, 2005.
10.108(o)**	Amendment No. 3 to Employment Agreement with Christopher L. Nelson dated January 6, 2006
10.109	Amendment to Certificate of Designations of the Series A-1 Convertible Preferred Stock
10.110	Certificate of Designations of the Series B-1 Convertible Preferred Stock
10.111	Form of Subscription Agreement for the Series B-1 Preferred Stock financing
10.112	Registration Rights Agreement for the Series B-1 Preferred Stock financing
10.113	Form of Warrant issued in the Series B-1 Preferred Stock financing
10.114*	Agreements representing the registrant’s renewal of its subcontract to continue performing services for the Department of Veterans’ Affairs.
21.1	List of Subsidiaries
23.1	Consent of Reznick Group, P.C., Independent Registered Public Accounting Firm
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32.1	Chief Executive Officer Certification pursuant to Section 906 of the Sarbanes/Oxley Act of 2002.

40

32.2	Chief Financial Officer Certification pursuant to Section 906 of the Sarbanes/Oxley Act of 2002.
99.4(h)	Form of Warrant issued to the Series F holders on December 28, 2001
99.5(h)	Form of Warrant issued to the convertible noteholders on December 28, 2001
99.7(b)	Audit Committee Charter

*The registrant has requested and/or received confidential treatment with respect to certain portions of this exhibit. Such portions have been omitted from this exhibit and have been filed separately with the SEC.

**Management contract or compensatory plan or arrangement required to be filed as an exhibit to this Annual Report on Form 10-K.

(a)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Registration Statement on Form S-1 (File No. 333-12135).

(b)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s current report on Form 8-K filed June 1, 2001.

(c)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Quarterly Report on Form 10-Q filed May 15, 2002.

(d)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s current report on Form 8-K filed June 28, 2002.

(e)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Post-Effective Amendment No. 1 to Registration Statement No. 333-108380 as filed on July 19, 2004.

(f)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s current report on Form 8-K filed October 3, 2002.

(g)Not used.

(h)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s current report on Form 8-K filed January 8, 2002

(i)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Quarterly Report on Form 10-Q filed May 15, 2003.

(j)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2003.

(k)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004.

(l)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004.

(m)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s current report on Form 8-K filed April 4, 2005.

(n)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s current report on Form 8-K filed December 14, 2005.

(o)  Incorporated by reference to the Exhibits to the Registrant’s current report on Form 8-K filed January 6, 2006.

(p)Incorporated by reference to the similarly numbered Exhibit to the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2003.

41

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VCAMPUS CORPORATION
By:	/s/ NARASIMHAN P. KANNAN
	Narasimhan P. Kannan, Chief Executive Officer

Date: March 21, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities and on the dates indicated.

	Signature		Capacity		Date
/s/ NARASIMHAN P. KANNAN		Chairman and Chief Executive Officer		March 21, 2006
Narasimhan P. Kannan		(Principal Executive Officer)
/s/ CHRISTOPHER L. NELSON		Chief Financial Officer		March 21, 2006
Christopher L. Nelson		(Principal Financial and Accounting Officer)
/s/ EDSON D. DECASTRO		Director		March  21, 2006
Edson D. deCastro
/s/ MARTIN E. MALESKA		Director		March 20, 2006
Martin E. Maleska
/s/ JOHN D. SEARS		Director		March 22, 2006
John D. Sears

42

VCAMPUS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Reznick Group, P.C., Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2004 and 2005	F-3
Consolidated Statements of Operations for the years ended December 31, 2003, 2004 and 2005	F-4
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2003, 2004 and 2005	F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2003, 2004 and 2005	F-9
Notes to Consolidated Financial Statements	F-10
Schedule II—Valuation and Qualifying Account and Reserve	F-35

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To Board of Directors and Stockholders
VCampus Corporation

We have audited the accompanying consolidated balance sheets of VCampus Corporation and subsidiaries as of December 31, 2004 and 2005, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. Our audits also included the financial statement schedule listed in the Index at Item 15(a)2. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of VCampus Corporation and subsidiaries at December 31, 2004 and 2005, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ REZNICK GROUP, P.C.

Vienna, Virginia
March 10, 2006, except for note 15, as to which the date is March 23, 2006

F-2

VCAMPUS CORPORATION

CONSOLIDATED BALANCE SHEETS

	December 31, 2004			December 31, 2005
ASSETS
Current assets:
Cash and cash equivalents	$	2,632,504		$	2,488,159
Accounts receivable, less allowance of $5,000 at December 31, 2004 and 2005	283,101			209,338
Loans receivable from related party	49,783			15,453
Prepaid expenses and other current assets	665,663			325,818
Total current assets	3,631,051			3,038,768
Property and equipment, net	523,662			313,880
Capitalized software costs and courseware development costs, net	1,826,745			1,308,577
Other assets	418,684			231,859
Other intangible assets, net	390,502			257,006
Goodwill	328,317			328,317
Total assets	$	7,118,961		$	5,478,407
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	575,183		$	1,182,585
Accrued expenses	318,478			479,316
Notes payable	66,207			191,796
Deferred revenues	851,118			469,280
Accrued dividends payable on Series A-1 convertible Preferred Stock	—			14,312
Total current liabilities	1,810,986			2,337,289
Long-term liabilities:
Notes payable—less discount and current portion	463,446			479,489
Total liabilities	2,274,432			2,816,778
Commitments and contingencies:	—			—
Stockholders’ equity:
Series A-1 convertible Preferred Stock, $0.01 par value per share; aggregate liquidation preference of $2,356,312; 5,000 shares authorized; 0 and 2,342 shares issued and outstanding at December 31, 2004 and 2005, respectively	—			23
Common Stock, $0.01 par value per share; 36,000,000 shares authorized; 8,461,086 and 9,592,074 shares issued and outstanding at December 31, 2004 and 2005, respectively	84,611			95,921
Additional paid-in capital	101,732,238			105,418,644
Accumulated deficit	(96,972,320		)	(102,852,959		)
Total stockholders’ equity	4,844,529			2,661,629
Total liabilities and stockholders’ equity	$	7,118,961		$	5,478,407

The accompanying notes are an integral part of the consolidated financial statements.

F-3

VCAMPUS CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

	Years ended December 31,
	2003			2004			2005
Revenues:
Online tuition revenues	$	5,508,154		$	4,497,513		$	4,045,979
Online development and other revenues	448,082			318,456			518,484
Other service revenues	109,799			47,890			—
Net revenues	6,066,035			4,863,859			4,564,463
Costs and expenses:
Cost of revenues	1,718,340			1,356,699			1,730,892
Sales and marketing	2,137,791			1,895,340			1,723,313
Product development and operations	2,474,856			2,725,155			2,649,215
General and administrative	1,909,814			1,686,940			1,488,240
Depreciation and amortization	879,966			1,227,089			1,574,242
Reorganization and other non-recurring charges	172,729			—			—
Stock-based compensation	126,056			153,973			109,493
Total costs and expenses	9,419,552			9,045,196			9,275,395
Loss from operations	(3,353,517		)	(4,181,337		)	(4,710,932		)
Other income	207,138			183,210			—
Interest expense, net	(112,644		)	(2,581,289		)	(1,155,395		)
Net loss	(3,259,023		)	(6,579,416		)	(5,866,327		)
Dividends to preferred stockholders	(2,926,854		)	—			(14,312		)
Net loss attributable to common stockholders	$	(6,185,877	)	$	(6,579,416	)	$	(5,880,639	)
Basic and diluted net loss per share	$	(1.81	)	$	(0.97	)	$	(0.63	)

The accompanying notes are an integral part of the consolidated financial statements.

F-4

VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Series C Convertible Preferred Stock					Series D Convertible Preferred Stock					Series E Convertible Preferred Stock
	Shares		Amount			Shares		Amount			Shares		Amount
Balance at December 31, 2002	623,339		$	6,233		1,013,809		$	10,138		574,895		$	5,749
Issuance of Preferred Stock for payment of Series E Dividends	—		—			—		—			9,940		100
Issuance of Series G convertible Preferred Stock	—		—			—		—			—		—
Issuance of Series H convertible Preferred Stock	—		—			—		—			—		—
Issuance of Common Stock	—		—			—		—			—		—
Conversion of Preferred Stock to common stock	(623,339	)	(6,233		)	(1,013,809	)	(10,138		)	(584,835	)	(5,849		)
Compensatory stock, stock options and warrants	—		—			—		—			—		—
Net loss	—		—			—		—			—		—
Balance at December 31, 2003	—		$	—		—		$	—		—		$	—
Issuance of Common Stock	—		—			—		—			—		—
Issuance of Common Stock in connection with debt conversions	—		—			—		—			—		—
Exercises of options and warrants
Compensatory stock, stock options and warrants	—		—			—		—			—		—
Net loss	—		—			—		—			—		—
Balance at December 31, 2004	—		$	—		—		$	—		—		$	—
Issuance of Series A-1 convertible Preferred Stock	—		—			—		—			—		—
Issuance of Common Stock	—		—			—		—			—		—
Issuance of Common Stock in connection with debt conversions	—		—			—		—			—		—
Exercises of options and warrants
Compensatory stock, stock options and warrants	—		—			—		—			—		—
Net loss	—		—			—		—			—		—
Dividends on convertible Preferred Stock	—		—			—		—			—		—
Balance at December 31, 2005	—		$	—		—		$	—		—		$	—

F-5

VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

	Series F Convertible Preferred Stock					Series F-1 Convertible Preferred Stock					Series F-2 Convertible Preferred Stock
	Shares		Amount			Shares		Amount			Shares		Amount
Balance at December 31, 2002	3,000,000		$	30,000		1,458,413		$	14,584		27,578			$	276
Issuance of Preferred Stock for payment of Series E Dividends	—		—			—		—			—			—
Issuance of Series G convertible Preferred Stock	—		—			—		—			—			—
Issuance of Series H convertible Preferred Stock	—		—			—		—			—			—
Issuance of Common Stock	—		—			—		—			—			—
Conversion of Preferred Stock to common stock	(3,000,000	)	(30,000		)	(1,458,413	)	(14,584		)	(27,578	)		(276		)
Compensatory stock, stock options and warrants	—		—			—		—			—			—
Net loss	—		—			—		—			—			—
Balance at December 31, 2003	—		$	—		—		$	—		—			$	—
Issuance of Common Stock	—		—			—		—			—			—
Issuance of Common Stock in connection with debt conversions	—		—			—		—			—			—
Exercises of options and warrants	—		—			—		—			—			—
Compensatory stock, stock options and warrants	—		—			—		—			—			—
Net loss	—		—			—		—			—			—
Balance at December 31, 2004	—		$	—		—		$	—		—			$	—
Issuance of Series A-1 convertible Preferred Stock	—		—			—		—			—			—
Issuance of Common Stock	—		—			—		—			—			—
Issuance of Common Stock in connection with debt conversions	—		—			—		—			—			—
Exercises of options and warrants	—		—			—		—			—			—
Compensatory stock, stock options and warrants	—		—			—		—			—			—
Net loss	—		—			—		—			—			—
Dividends on convertible Preferred Stock	—		—			—		—			—			—
Balance at December 31, 2005	—		$	—		—		$	—		—			$	—

F-6

VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

	Series G Convertible					Series H Convertible							Series A-1 Convertible
	Preferred Stock					Preferred Stock							Preferred Stock					Common Stock
	Shares	Amount				Shares			Amount				Shares		Amount			Shares	Amount
Balance at December 31, 2002	49,320		$	492			—			$	—			—		$	—	1,573,904	$	15,739
Issuance of Preferred Stock for payment of Series E Dividends	—		—				—			—				—		—		—	—
Issuance of Series G convertible Preferred Stock	28,721		288				—			—				—		—		—	—
Issuance of Series H convertible Preferred Stock	—		—				7,503			75				—		—		—	—
Issuance of Common Stock	—		—				—			—				—		—		548,551	5,486
Conversion of Preferred Stock to common stock	(78,041		(780		)		(7,503	)		(75		)		—		—		3,008,886	30,088
Compensatory stock, stock options and warrants	—		—				—			—				—		—		35,659	357
Net loss	—		—				—			—				—		—		—	—
Balance at December 31, 2003	—		$	—			—			$	—			—		$	—	5,167,000	$	51,670
Issuance of Common Stock	—		—				—			—				—		—		1,012,500	10,125
Issuance of Common Stock in connection with debt conversions	—		—				—			—				—		—		1,076,772	10,766
Exercises of options and warrants	—		—				—			—				—		—		1,132,617	11,326
Compensatory stock, stock options and warrants	—		—				—			—				—		—		72,197	724
Net loss	—		—				—			—				—		—		—	—
Balance at December 31, 2004	—		$	—			—			$	—			—		$	—	8,461,086	$	84,611
Issuance of Series A-1 convertible Preferred Stock	—		—				—			—				2,342		23		—	—
Issuance of Common Stock	—		—				—			—				—		—		611,012	6,110
Issuance of Common Stock in connection with debt conversions	—		—				—			—				—		—		386,152	3,862
Exercises of options and warrants	—		—				—			—				—		—		—	—
Compensatory stock, stock options and warrants	—		—				—			—				—		—		133,824	1,338
Net loss	—		—				—			—				—		—		—	—
Dividends on convertible Preferred Stock	—		—				—			—				—		—		—	—
Balance at December 31, 2005	—		$	—			—			$	—			2,342		$	23	9,592,074	$	95,921

F-7

VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

	Additional Paid in Capital		Accumulated  Deficit			Total  Stockholders’  Equity
Balance at December 31, 2002	$	85,771,622	$	(84,207,028	)		$	1,647,805
Issuance of Preferred Stock for payment of Series E Dividends	3,248		(3,348		)		—
Issuance of Series G convertible Preferred Stock	874,649		—				874,937
Issuance of Series H convertible Preferred Stock	1,740,165		—				1,740,240
Issuance of Common Stock	899,844		—				905,330
Conversion of Preferred Stock to common stock	37,847		—				—
Compensatory stock, stock options and warrants	3,049,204		(2,923,505		)		126,056
Net loss	—		(3,259,023		)		(3,259,023		)
Balance at December 31, 2003	$	92,376,579	$	(90,392,904	)		$	2,035,345
Issuance of Common Stock	1,520,209		—				1,530,334
Issuance of Common Stock in connection with debt conversions	1,808,808		—				1,819,574
Exercises of options and warrants	1,932,957		—				1,944,283
Compensatory stock, stock options and warrants	4,093,685		—				4,094,409
Net loss	—		(6,579,416		)		(6,579,416		)
Balance at December 31, 2004	$	101,732,238	$	(96,972,320	)		$	4,844,529
Issuance of Series A-1 convertible Preferred Stock	2,032,833		—				2,032,856
Issuance of Common Stock	894,340		—				900,450
Issuance of Common Stock in connection with debt conversions	625,579		—				629,441
Exercises of options and warrants	—		—				—
Compensatory stock, stock options and warrants	133,654		—				134,992
Net loss	—		(5,866,327		)		(5,866,327		)
Dividends on convertible Preferred Stock	—		(14,312		)		(14,312		)
Balance at December 31, 2005	$	105,418,644	$	(102,852,959	)		$	2,661,629

The accompanying notes are an integral part of the consolidated financial statements.

F-8

VCAMPUS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years ended December 31,
	2003			2004			2005
Operating Activities
Net loss	$	(3,259,023	)	$	(6,579,416	)	$	(5,866,327	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	283,354			290,050			300,067
Amortization	596,611			937,039			1,025,199
Bad debt expense	8,622			—			—
Impairment of capitalized software and courseware development costs	—			—			248,976
Non-cash stock option and stock warrant expense	126,056			153,973			109,493
Debt discount and deferred financing costs amortization	84,841			2,430,849			1,060,057
Interest expense paid with stock	—			117,992			42,400
Settlement of accounts payable and accrued expenses	—			(183,210		)	—
Decrease in allowance for doubtful accounts	(26,019		)	—			(584		)
Changes in operating assets and liabilities:
Accounts receivable	81,207			7,429			74,346
Prepaid expenses and other current assets	(32,194		)	116,053			315,812
Other assets	62,848			1,118			44,541
Accounts payable and accrued expenses	(185,971		)	(541,359		)	838,972
Deferred revenues	227,560			(159,445		)	(381,838		)
Net cash used in operating activities	(2,032,108		)	(3,408,927		)	(2,188,886		)
Investing Activities
Purchases of property and equipment	(464,720		)	(305,374		)	(90,284		)
Proceeds from the sale of property and equipment	—			1,324			—
Capitalized software and courseware development costs	(1,255,579		)	(931,497		)	(622,510		)
Proceeds from loans receivable from related party	36,000			36,000			36,000
Interest on loans receivable from related party	(2,992		)	(2,038		)	(1,670		)
Proceeds from loans receivable	35,000			74,252			—
Advances under loans receivable	(5,061		)	—			—
Net cash used in investing activities	(1,657,352		)	(1,127,333		)	(678,464		)
Financing Activities
Proceeds from issuance of Common Stock	905,330			3,474,614			900,450
Proceeds from the issuance of Series G convertible Preferred Stock, net of offering costs	874,937			—			—
Proceeds from the issuance of Series H convertible Preferred Stock, net of offering costs	1,740,240			—			—
Proceeds from the issuance of Series A-1 convertible Preferred Stock, net of offering costs	—			—			2,032,856
Payments on capital lease obligations	(23,529		)	—			—
Proceeds from notes payable	—			3,384,166			—
Repayments of notes payable	—			(225,000		)	(210,301		)
Net cash provided by financing activities	3,496,978			6,633,780			2,723,005
Net increase (decrease) in cash and cash equivalents	(192,482		)	2,097,520			(144,345		)
Cash and cash equivalents at the beginning of the year	727,466			534,984			2,632,504
Cash and cash equivalents at the end of the year	$	534,984		$	2,632,504		$	2,488,159
Supplemental cash flow information:
Interest paid	$	——		$	43,530		$	66,703

The accompanying notes are an integral part of the consolidated financial statements.

F-9

VCAMPUS CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.Organization and Nature of Operations

VCampus Corporation (the “Company”) was incorporated in Virginia in 1984 and reincorporated in Delaware in 1985. VCampus Corporation is a provider of outsourced e-Learning services. The Company develops courseware and manages and hosts Internet-based learning environments for professional credentialing and certification organizations, corporations, government agencies, and associations. The Company’s services cover a broad range of e-Learning programs, from registration,  enrollment and course delivery  to custom course development, e-commerce and publishing, as well as tracking of students’ progress, reporting of results and production of certificates of completion.

Management’s Plans to Address Operating Conditions

The Company has incurred significant losses since inception. The Company expects negative cash flow from operations to continue until the Select Partner business model matures. In addition, the Company has experienced declining revenues in the current and prior periods, including the loss of a major customer in 2004 which represented 25% of revenues in 2004.

Management’s plans to address these conditions include sales to new customers through the Select Partner program which have partially replaced the sales related to the customer lost in 2004. Management anticipates the increase in sales seen in the current and prior periods under the Select Partner program to continue in 2006. Management has also instituted cost cutting measures and operates under an  approved budget which is closely monitored. Management is committed to maintaining operations at current levels to meet projected sales levels.

If the Company is not able to address its funding needs, it will be materially adversely affected. The Company’s future capital requirements will depend on many factors, including, but not limited to, acceptance of and demand for its products and services including the Select Partner business model, use of cash to finance any acquisitions it might pursue, customer demands for technology upgrades, the types of arrangements that the Company may enter into with customers and agents, and the extent to which the Company invests in new technology and research and development projects. While the Company believes it has the ability to raise additional capital, the Company’s ability to raise capital  beyond the $1,000,000 and $2,300,000 raised in the March and December 2005 private placements (see note 11) is uncertain. If the Company is unable to raise additional funding to meet working capital requirements and comply with the minimum bid price requirement, it may be unable to maintain compliance with Nasdaq Capital market listing requirements.

2.Summary of Significant Accounting Policies

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Use of Estimates

The preparation of the consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

F-10

Cash Equivalents

Cash equivalents, consist of highly liquid investments, which are readily convertible into cash and have original maturities of three months or less.

Non-Cash Financing Activities

In February 2003, the Company issued 226 shares of Series G Preferred Stock with an aggregate value of $8,927 and five-year fully vested warrants to purchase 564 shares of common stock with an exercise price of $2.99 per share to a placement agent in connection with private placement of its Series G Preferred Stock. As this was a placement of preferred stock, the fair value of the common stock and warrants issued to the placement agent was accounted for as cost of capital.

In September and October 2003, the Company issued an aggregate of 27,711 shares of its common stock with an aggregate value of $71,771 and three-year fully vested warrants to purchase 27,711 shares of common stock with an exercise price of $2.59 per share to a placement agent in connection with the financings completed in that period. As this was a placement of common stock, the fair value of the common stock and warrants issued to the placement agent was accounted for as cost of capital.

In 2004, the Company issued 927,696 shares of common stock upon mandatory and voluntary conversions of $999,625 and $512,500, respectively, of Series A and Series B senior secured convertible note principal at $1.63 per share.

In March and May 2004, the Company issued 76,688 shares of common stock with a value of $189,419 and five-year fully vested warrants to purchase 250,000 shares of common stock at $1.63 per share valued at $545,000 in satisfaction of accrued financing costs related to the March 2004 private placement. The Company allocated $505,730 of the total value of the shares and warrants to deferred debt issuance costs, which will be recognized as interest expense over the period the notes are expected to be outstanding. The remaining amount was accounted for as a cost of capital. In addition, the Company issued one quarter unit of the March 2004 private placement with an aggregate value of $50,000 to the lead investor’s counsel as payment for legal services in connection with the private placement. The Company allocated $34,430 of the total value of the one quarter unit to deferred debt issuance costs, which will be recognized as interest expense over the period the notes are expected to be outstanding. The remaining amount was accounted for as a cost of capital.

In 2005, the Company issued 332,398 shares of common stock upon voluntary conversions of $541,809 of Series A and Series B senior secured convertible note principal at $1.63 per share.

In 2005, the Company issued 30,550 shares of common stock with a value of $50,000 in satisfaction of a finder’s fee related to the March 2005 private placement. In 2005, the Company issued 42 shares of Series A-1 Preferred Stock and a five-year warrant to purchase 75,450 shares of common stock, in satisfaction of a finder’s fee related to the December 2005 private placement. The Series A-1 Preferred Stock and warrant have the same terms as the securities issued in the December 2005 financing.

In 2005, the Company issued 11,860 shares of common stock with a value of $25,500 in satisfaction of accounts payable to a financial advisor.

In 2005, the Company issued 27,749 shares of common stock with a value of $45,232 in satisfaction of accrued and unpaid interest on its Series A and Series B secured convertible notes.

In 2005, the Company declared and accrued $14,312 of dividends on its Series A-1 convertible Preferred Stock.

Accounts Receivable

Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit losses in the Company’s

F-11

existing accounts receivable. The Company determines the allowance based on historical write-off experience. The Company reviews its allowance for doubtful accounts monthly. Past due balances over 90 days are reviewed individually for collectibility. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers.

Loans Receivable

The Company periodically assesses the collectibility of its loans receivable and records balances due at the amount it believes it will be able to collect during the term of the loan.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of two to seven years. Leasehold improvements are amortized over the lesser of the lease term or estimated useful life. Repairs and maintenance that do not improve or extend the lives of the respective assets are expensed in the period incurred. Depreciation expense was $283,354, $290,050 and $300,067 for 2003, 2004 and 2005, respectively.

Capitalized Software and Courseware Development Costs

During 2003, 2004 and 2005, the Company capitalized certain software and courseware development costs. The Company capitalizes the cost of software used for internal operations once technological feasibility of the software has been demonstrated. The Company capitalizes costs incurred during the development process, including payroll costs for employees who are directly associated with the development process and services performed by consultants. Amortization of such costs is based on the greater of (1) the ratio of current gross revenues to the sum of current and anticipated gross revenues, or (2) the straight-line method over the remaining economic life of the vcampus or courseware, typically two to three years. It is possible that those anticipated gross revenues, the remaining economic life of the products, or both, may be reduced as a result of future events. During 2003, 2004 and 2005, the Company recognized amortization of capitalized software and courseware development costs of $417,613, $758,047, and $891,702, respectively. During the 2005, the Company wrote off $248,976 in unamortized capitalized software and courseware development costs for a total of nine courses, as a result of impairment analyses conducted by the Company in connection with the review of its financial statements. The Company determined that the impairment charges were necessary because the carrying amount of the assets represented by the courses exceeded the Company’s determination of the fair value of the assets. The write-offs have been included in depreciation and amortization expense in the 2005 statements of operations.

Web Site Development Costs

The Company accounts for web site development costs in accordance with Emerging Issues Task Force Issue No. 00-2, Accounting for Web Site Development Costs (“EITF 00-2”). In 2003, 2004 and 2005 all web site development costs were incurred in the operating stage, including maintenance and minor enhancements and upgrades, and were expensed as incurred.

Goodwill and Other Intangible Assets

Goodwill and other intangibles represent the unamortized excess of the cost of acquiring subsidiary companies over the fair values of such companies’ net tangible assets at the dates of acquisition.

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” (SFAS 142).  The Company does not have any indefinite-lived intangibles. In accordance with SFAS 142, the Company reviewed the useful lives of its intangible assets and determined that they remained appropriate.

F-12

In connection with the adoption of SFAS 142, the Company performed an assessment of whether there were indicators that goodwill was impaired at the date of adoption. To accomplish this, the Company identified its reporting units and determined the carrying value of each reporting unit. The Company then determined the fair value of the reporting unit and compared it to the reporting unit’s carrying amount. To the extent the reporting unit’s carrying amount exceeds its fair value, an indication exists that the reporting unit’s goodwill may be impaired and the Company must perform the second step of the impairment test. In the second step, the Company must compare the implied fair value of the reporting unit’s goodwill, determined by allocating the reporting unit’s fair value to all of its assets and liabilities in a manner similar to a purchase price allocation in accordance with SFAS 141, to its carrying amount, both of which would be measured as of the date of adoption.

The Company performed the initial goodwill impairment test required by SFAS 142 during the second quarter of fiscal 2002. The Company considers itself to be a single reporting unit. Accordingly, all of the Company’s goodwill is associated with the entire Company. The Company performed its initial impairment test and as of June 30, 2002, based on the Company’s market capitalization; there was no impairment of goodwill recorded upon implementation of SFAS 142. The Company has tested and will continue to test for impairment on an annual basis, coinciding with its fiscal year end, or on an interim basis if circumstances change that would more likely than not reduce the fair value of the Company’s reporting unit below its carrying amount. The Company performed its annual impairment test as of December 31, 2005, and concluded that no impairment charge for goodwill and other intangible assets was required.

Impairment of Long-Lived Assets

The Company accounts for long-lived assets in accordance with the provisions of SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability of assets is measured by comparing the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are reflected at the lower of their carrying amount or fair value less cost to sell.

During 2005, the Company wrote off $248,976 in unamortized capitalized software and courseware development costs for a total of nine courses, as a result of impairment analyses conducted by the Company in connection with the review of its financial statements. The Company determined that the impairment charges were necessary because the carrying amount of the assets represented by the courses exceeded the Company’s determination of the fair value of the assets. The write-offs have been included in depreciation and amortization expense in the 2005 statements of operations.

Revenue Recognition

The Company currently derives its revenues from online tuition revenues and development and other revenues.

Online tuition revenues are generated primarily through three types of contracts: (i) corporate subscriptions, (ii) contracts with Select Partners and (iii) corporate usage. Under corporate subscriptions and Select Partner contracts, revenue is recognized ratably (on a straight-line basis) over the subscription period. For usage contracts, revenue is recognized upon enrollment in a course. Once a student has enrolled in a course, he cannot cancel delivery of a course or receive a refund. On rare occasions, the Company may extend the subscription length for a specific student’s course at no charge. Initial set-up fees related to all online tuition services are recognized ratably (on a straight-line basis) over the respective contract term.

F-13

Development and other revenues consist primarily of fees paid to the Company for developing and converting courseware. For arrangements that include more than one element, the Company allocates the total arrangement fee among each deliverable based on vendor-specific objective evidence (“VSOE”) of the relative fair value of each deliverable. VSOE is determined using the price charged when that element is sold separately by the Company. Development and other revenues earned under courseware conversion contracts are recognized relative to the Company’s proportionate performance based on the ratio that total costs incurred to-date bear to total estimated costs. The Company uses direct labor hours as the key criteria to measure progress towards completion. The Company develops its estimates to complete based on budgeted total costs and periodic assessment by Company project managers. Provisions for losses on arrangements are made in the period in which they are determined.

The Company sometimes recognizes development and other revenues as a separate element of an arrangement with a customer that also contains an element to provide courseware delivery services. The SEC Staff believes that the best indicator that a separate element exists is that a vendor sells or could readily sell that element unaccompanied by other elements. The Company has a history of selling courseware development and conversion services unaccompanied by other elements. Further, EITF 00-21 (“Revenue Arrangements with Multiple Deliverables”), states that a deliverable should be segmented and accounted for separately from the remainder of the arrangement if: (1) there is objective and reliable evidence of the fair value of the element and (2) the element does not affect the quality of use or the value of the other elements and the element can be purchased from an unrelated vendor without effecting the quality of use or value of the other elements. The Company believes that the hourly rates charged for development revenues are consistent and represent the fair value of these services.

In most cases, development projects are requested after delivery of online tuition services has begun (i.e. no development work was considered when terms of the online tuition agreement were negotiated). The Company has demonstrated the ability for its developed and converted material to be used in absence of its platform. In addition, customers can use other vendors to develop electronic course material or develop course material internally for use on its platform. Accordingly, the Company believes that separate recognition of development revenues for customers who have online tuition contracts is appropriate.

Prior to the third quarter of 2004, the Company had also been recognizing revenues for other services. Revenues for other services were being recognized as the services were delivered.

The Company accounts for cash received from customers as prepayments for future services as deferred revenue. The Company recognizes revenue associated with those cash receipts in accordance with the above policies.

In 2003, three customers individually accounted for approximately 36%, 18% and 15% of net revenues, and in 2004 the same three customers individually accounted for 27%, 25% and 21% of net revenues. In 2005, two customers individually accounted for 36% and 20% of net revenues.

Stock-Based Compensation

Through the periods covered by this report, the Company has applied the intrinsic-value-based method of accounting prescribed by Accounting Principles Board Opinion No. 25 (“APB 25”), Accounting for Stock Issued to Employees, and related interpretations including FASB Interpretation No. 44 (“FIN 44”), Accounting for Certain Transactions Involving Stock Compensation, an interpretation of APB 25, issued in March 2000, to account for its fixed-plan stock options. Under this method, compensation expense is recorded only if the current market price of the underlying stock exceeded the exercise price on the date of the grant. Statement of Financial Accounting Standards No. 123 (“SFAS 123”), Accounting for Stock-Based Compensation, established accounting and disclosure requirements using a fair-value-based method of accounting for stock-based employee compensation plans. As allowed by SFAS 123, for the periods covered by this report the Company has elected to continue to apply the intrinsic-value-based method of

F-14

accounting described above, and has adopted only the disclosure requirements of SFAS 123 as amended by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure, Amendment of SFAS 123 (“SFAS 148”).

Stock options and warrants granted to non-employees are accounted for using the fair value method in accordance with the SFAS No. 123 and EITF 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services.

The following table illustrates the pro forma effect on net loss attributable to common stockholders (net loss) and pro forma net loss per common share as if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based compensation.

	2003			2004			2005
Pro forma net loss:
As reported	$	(6,185,877	)	$	(6,579,416	)	$	5,880,639
Add: Non cash stock compensation included in reported net loss attributable to common stockholders	126,056			153,973			109,493
Deduct: Total employee non cash stock compensation expense determined under fair value based method for all awards	(5,486,954		)	(3,212,044		)	(2,185,731		)
Pro forma net loss	$	(11,546,775	)	$	(9,637,487	)	$	(7,956,877	)
Net loss per common share:
Basic and diluted—as reported	$	(1.81	)	$	(0.97	)	$	(0.63	)
Basic and diluted—pro forma	$	(3.37	)	$	(1.42	)	$	(0.86	)

The effect of applying SFAS No. 123 on the pro forma net loss as stated above is not necessarily representative of the effects on reported net loss for future years due to, among other things, the vesting period of the stock options and the fair value of additional options to be granted in the future years.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing fair value model with the following assumptions:

	2003		2004		2005
Dividend yield	0	%	0	%	0	%
Volatility	126	%	130	%	132	%
Average risk-free interest rate	3.52	%	3.87	%	4.15	%
Expected term	7 years		8 years		8 years

Concentration of Credit Risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company deposits its cash with financial institutions that the Company considers to be of high credit quality.

The Company performs ongoing credit evaluations of its customers’ financial condition and generally does not require collateral. The Company maintains reserves for credit losses, and such losses have been within management’s expectations.

Three customers individually represented 25%, 21%, and 17% of accounts receivable at December 31, 2004. Two customers individually represented 37% and 12% of accounts receivable at December 31, 2005.

F-15

Financial Instruments

The carrying value of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, loans receivable, accounts payable, accrued expenses and deferred revenues approximated their fair values based on the short-term maturities of these instruments.

Royalties

Royalties are due and payable by the Company upon the sale of certain courses for which the Company has acquired or otherwise licensed the online publishing rights. In addition, the Company may be obligated to pay certain royalties related to courses which a customer may have converted to an online format and elected to distribute to all the Company’s customers. Royalties accrue at a rate of 10% to 70% of the tuition fees received with respect to certain courses.

Royalties are classified as a cost of revenues and amounted to approximately $1,530,000, $1,198,000 and $1,342,000 during the years ended December 31, 2003, 2004 and 2005, respectively.

Advertising Costs

The Company expenses advertising costs as incurred. Advertising costs amounted to approximately $0, $70,000 and $132,000 for the years ended December 31, 2003, 2004, and 2005 respectively.

Income Taxes

The Company provides for income taxes in accordance with the liability method. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Because the realization of tax benefits related to the Company’s net deferred tax asset is uncertain, a full valuation allowance of $28,624,000 has been provided against the net deferred tax asset.

Net Loss Per Share

The Company follows the provisions of SFAS No. 128, Earnings per Share (“SFAS No. 128”) which requires the Company to present basic and diluted earnings (or net loss) per share. Basic earnings (or net loss) per share is based on the actual weighted-average shares outstanding and excludes any dilutive effects of shares issuable upon the exercise or conversion of outstanding options, warrants and convertible securities. To calculate diluted earnings (or net loss) per share, the earnings (or net loss) is divided by a denominator which includes not only actual shares of common stock outstanding, but also the additional shares of common stock issuable upon exercise or conversion of stock options, warrants, and convertible preferred stock. For all years presented, shares of common stock issuable upon the exercise or conversion of stock options, warrants, and convertible preferred stock have been excluded from diluted earnings per share because their effect is anti-dilutive.

Recent Accounting Pronouncements

In December 2004, FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment”, or SFAS 123(R), which is a revision of SFAS No. 123 “Accounting for Stock-Based Compensation” (as amended) and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Generally the approach in SFAS 123(R) is similar to the approach described in SFAS No. 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative upon adopting SFAS 123(R).

F-16

The Company adopted SFAS 123(R) on January 1, 2006. SFAS 123(R) permits public companies to adopt its requirements using one of two methods:

The “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123(R) for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date; or

The “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123(R) for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

The Company will implement SFAS 123(R) in the first quarter of 2006 and intends to use the “modified prospective method”. The Company believes the pro forma disclosures in note 2, “Summary of Significant Accounting Policies,” of the consolidated financial statements under the sub-heading “Stock-Based Compensation” provides an appropriate short-term indicator of the level of expense that will be recognized in accordance with SFAS 123(R) for stock options granted prior to January 1, 2006 plus the expense related to stock options granted during 2006. The expense for stock options granted during 2006 cannot be determined at this time due to the uncertainty of the Company’s stock price, the related Black-Scholes fair value and the timing of future grants.

In June 2005, the FASB ratified EITF Issue No. 05-2, “The Meaning of ‘Conventional Convertible Debt Instrument’ in EITF Issue No. 00-19, ‘Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company’s Own Stock’ ” (“EITF No. 05-2”), which addresses when a convertible debt instrument should be considered “conventional” for the purpose of applying the guidance in EITF No. 00-19. EITF No. 05-2 also retained the exemption under EITF No. 00-19 for conventional convertible debt instruments and indicated that convertible preferred stock having a mandatory redemption date may qualify for the exemption provided under EITF No. 00-19 for conventional convertible debt if the instrument’s economic characteristics are more similar to debt than equity. EITF No. 05-2 is effective for new instruments entered into and instruments modified in periods beginning after June 29, 2005. The Company has applied the requirements of EITF No. 05-2 since the required implementation date.

In September 2005, the FASB ratified the following consensus reached in EITF Issue 05-8 (“Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature”): a) the issuance of convertible debt with a beneficial conversion feature results in a basis difference in applying FASB Statement of Financial Accounting Standards SFAS No. 109, Accounting for Income Taxes. Recognition of such a feature effectively creates a debt instrument and a separate equity instrument for book purposes, whereas the convertible debt is treated entirely as a debt instrument for income tax purposes. b) the resulting basis difference should be deemed a temporary difference because it will result in a taxable amount when the recorded amount of the liability is recovered or settled. c) recognition of deferred taxes for the temporary difference should be reported as an adjustment to additional paid-in capital. This consensus is effective in the first interim or annual reporting period commencing after December 15, 2005, with early application permitted. The effect of applying the consensus should be accounted for retroactively to all debt instruments containing a beneficial conversion feature that are subject to EITF Issue 00-27, “Application of Issue No. 98-5 to Certain Convertible Debt Instruments” (and thus is applicable to debt instruments converted or extinguished in prior periods but which are still presented in the financial statements). The adoption of this pronouncement is not expected to have a material impact on the Company’s consolidated financial statements.

F-17

Indebtedness with Detachable Warrants and Beneficial Conversion Feature

The Company has accounted for the issuance of detachable stock purchase warrants in accordance with Accounting Principles Board Opinion 14 (“APB 14”), whereby the Company separately measured the fair value of the indebtedness and the detachable warrants and allocated the total proceeds on a pro-rata basis to each. The proceeds allocated to the detachable warrants are credited to paid-in capital and the discount from the face value of the indebtedness is amortized over the estimated life of the indebtedness.

In accordance with the provisions of Emerging Issues Task Force Issue 98-5 (“EITF 98-5”) and EITF 00-27, the Company allocated a portion of the proceeds received to the embedded beneficial conversion feature, based on the difference between the effective conversion price of the proceeds allocated to the convertible indebtedness and the fair value of the underlying common stock on the date the convertible indebtedness was issued. Since the convertible indebtedness also had detachable stock purchase warrants, the Company first allocated the proceeds to the stock purchase warrants and the convertible indebtedness and then allocates the resulting convertible indebtedness proceeds between the beneficial conversion feature, which was accounted for as paid-in capital, and the initial carrying amount of the convertible indebtedness. The discount resulting from the beneficial conversion feature is amortized over the estimated life of the convertible indebtedness.

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks.

The Company reviews the terms of convertible debt and equity instruments issued to determine whether there are embedded derivative instruments, including the embedded conversion option, that are required to be bifurcated and accounted for separately as a derivative financial instrument. When the risks and rewards of any embedded derivative instrument are not “clearly and closely” related to the risks and rewards of the host instrument, the embedded derivative instrument is generally required to be bifurcated and accounted for separately. If the convertible instrument is debt, or has debt-like characteristics, the risks and rewards associated with the embedded conversion option are not “clearly and closely” related to that debt host instrument. The conversion option has the risks and rewards associated with an equity instrument, not a debt instrument, because its value is related to the value of our common stock. Nonetheless, if the host instrument is considered to be “conventional convertible debt” (or “conventional convertible preferred stock”), bifurcation of the embedded conversion option is generally not required. However, if the instrument is not considered to be conventional convertible debt (or conventional convertible preferred stock), bifurcation of the embedded conversion option may be required in certain circumstances. Generally, where the ability to physical or net-share settle the conversion option is deemed to be not within the control of the Company, the embedded conversion option is required to be bifurcated and accounted for as a derivative financial instrument liability.

In connection with the sale of convertible debt and equity instruments, the Company may also issue freestanding options or warrants. Additionally, the Company may issue options or warrants to non-employees in connection with consulting or other services they provide. Although the terms of the options and warrants may not provide for net-cash settlement, in certain circumstances, physical or net-share settlement may be deemed to not be within the control of the Company and, accordingly, the Company may be required to account for these freestanding options and warrants as derivative financial instrument liabilities, rather than as equity.

Derivative financial instruments are required to be initially measured at their fair value. For derivative financial instruments that shall be accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

F-18

In circumstances where the embedded conversion option in a convertible instrument may be required to be bifurcated and there are also other embedded derivative instruments in the convertible instrument that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

If the embedded derivative instrument is to be bifurcated and accounted for as a liability, the total proceeds received will be first allocated to the fair value of the bifurcated derivative instrument. If freestanding options or warrants were also issued and are to be accounted for as derivative instrument liabilities (rather than as equity), the proceeds are next allocated to the fair value of those instruments. The remaining proceeds, if any, are then allocated to the convertible instrument itself, usually resulting in that instrument being recorded at a discount from its face amount. In circumstances where a freestanding derivative instrument is to be accounted for as an equity instrument, the proceeds are allocated between the convertible instrument and the derivative equity instrument, based on their relative fair values.

To the extent that the fair values of the bifurcated and/or freestanding derivative instrument liabilities exceed the total proceeds received, an immediate charge to income is required to be recognized, in order to initially record the derivative instrument liabilities at their fair value. The discount from the face value of the convertible debt instrument is required to be amortized over the life of the instrument through periodic charges to income, using the effective interest method. When the instrument is convertible preferred stock, the periodic amortization of the discount is charged directly to retained earnings.

The Company reviews the classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, at the end of each reporting period. Derivative instrument liabilities are required to be classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. The Company currently does not have any derivative instruments that are required to be bifurcated and recorded as liabilities.

Registration Rights Agreements

In connection with the sale of certain debt and equity instruments, the Company has entered into Registration Rights Agreements. Generally, these Agreements require the Company to file registration statements with the Securities and Exchange Commission to register common shares that may be issued on conversion of debt or preferred stock, to permit re-sale of common shares previously sold under an exemption from registration or to register common shares that may be issued on exercise of outstanding options or warrants.

The Agreements usually require the Company to pay penalties for any time delay in filing the required registration statements, or in the registration statements becoming effective, beyond dates specified in the Agreement. These penalties are usually expressed as a fixed percentage, per month, of the original amount the Company received on issuance of the debt or preferred stock, common shares, options or warrants. The Company accounts for these penalties as a contingent liability and not as a derivative instrument. Accordingly, the Company recognizes the penalties when it becomes probable that they will be incurred. Any penalties are expensed over the period to which they relate.

Segment Information

The Company currently operates in one business segment; namely a provider of comprehensive outsourced e-Learning products and related services. The Company evaluates its market opportunities by referring to the Select Partner program business model and the Legacy business model. The Company is not organized by market and is managed and operated as one business. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. The Company does not operate any material separate lines of business or separate business entities with respect to its products or product development. Accordingly, the Company does not accumulate discrete financial

F-19

information with respect to separate product lines and does not have separately reportable segments as defined by SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information”.

Risks and Uncertainties

The Company is subject to all of the risks inherent in a company that operates in the intensely competitive Internet industry, providing a service that is relatively new and constantly evolving. These risks include, but are not limited to, market acceptance of the Company’s products and services, risks associated with acquisitions and expansion, and reliance on third-party software incorporated in the Company’s products. The Company’s operating results may be materially affected by these foregoing factors.

3.Property and Equipment

Property and equipment consisted of the following:

	December 31,
	2004			2005
Equipment	$	2,453,929		$	2,518,702
Computer software	1,295,173			1,311,325
Leasehold improvements	105,598			105,598
Furniture and fixtures	649,045			656,419
	4,503,745			4,592,044
Less accumulated depreciation	(3,980,083		)	(4,278,164		)
Total	$	523,662		$	313,880

4.Capitalized Software and Courseware Development Costs

Capitalized software and courseware development costs consisted of the following:

	December 31,
	2004			2005
Capitalized software costs	$	5,008,247		$	5,008,247
Capitalized courseware development costs	1,700,795			2,323,305
	6,709,042			7,331,552
Less accumulated amortization	(4,882,297		)	(6,022,975		)
Total	$	1,826,745		$	1,308,577

5.Goodwill and Other Intangible Assets

Other intangible assets were comprised of:

	December 31,
	2004			2005
Developed content	$	523,800		$	523,800
Trademarks and names	904,720			904,720
Customer base	304,820			304,820
	1,733,340			1,733,340
Less accumulated amortization	(1,342,838		)	(1,476,334		)
	$	390,502		$	257,006

F-20

Amortization expense for other intangible assets is expected to be as follows:

2006	110,740
2007	66,078
2008	43,747
2009	36,441
	$	257,006

Amortization expense related to intangible assets subject to amortization totaled $178,998, $178,992 and $133,496 for the years ended December 31, 2003, 2004 and 2005, respectively.

With the adoption of SFAS 142, amortization of goodwill was discontinued as of January 1, 2002.

6.Restructuring of Operations and Other Non-Recurring Items

In June 2003, the Company and the landlord at its Rockville, Maryland facility agreed to a settlement regarding the leased space that the Company vacated in December 2000. During 2003, the Company paid the landlord a total of $300,000 (plus a $24,000 security deposit retained by the landlord) to terminate the lease agreement. As a result of this settlement, the Company recorded an additional amount of $73,000,  which it included in restructuring and other non-recurring items on the 2003 statement of operations.

In June 2002, a former employee (separated in June 1998) filed suit against the Company in Dallas County, Texas. To avoid further litigation expenses and the risk of an adverse ruling, in June 2003 the Company paid the employee $99,999 in full settlement of all the claims, including the plaintiff’s attorneys’ fees.

7.Loans Receivable from Related Party

Loans receivable from a Company officer are unsecured and amounted to $49,783 and $15,453 as of December 31, 2004 and 2005, respectively. The Company accrues interest on the loans receivable at a rate of prime less 1%. Interest income related to loans receivable amounted to $2,992, $2,038 and $1,670 during the years ended December 31, 2003, 2004 and 2005, respectively. The amount repaid on loans receivable from related parties was $36,000 in each of 2003, 2004 and 2005.

8.Notes Payable

In December 2001 and January 2002, the Company raised $925,000 through the issuance of 8% debentures together with five-year, fully vested warrants to purchase 132,143 shares of common stock at $4.00 per share. The Company allocated the proceeds of the offering to the debentures and the warrants based on their relative fair values using the Black-Scholes option pricing model. The amount allocated to the warrants ($335,841 and $40,708 for the 2001 and 2002 funding, respectively), was recorded as a debt discount and was amortized to interest expense over the period the debentures were outstanding. In March 2002, the Company issued 1,458,413 shares of Series F-1 Preferred Stock and five-year fully vested warrants to purchase 14,584 shares of common stock at $4.00 per share in exchange for the cancellation of a note in the original principal amount of $500,000 plus $10,445 in accrued interest. In May 2002, the Company issued of 5,878 shares of Series F-2 Preferred Stock plus a warrant to purchase 5,878 shares of common stock at $4.00 per share, in exchange for the cancellation of a convertible promissory note in the principal and accrued interest amount of $205,730. Upon shareholder approval of the debt financing, the Company recorded an additional $91,563 of debt discount for the instruments’ beneficial conversion feature. The unamortized debt discount at December 31, 2003 and 2004 was $0. Principal and accrued interest under the debentures was due and payable at December 31, 2003. The debentures were convertible into shares of the Company’s common stock at the election of the holders at a conversion price

F-21

of $3.50 per share. In March 2004, the Company repaid the entire principal of $225,000 and accrued interest of  approximately $40,000 under the debentures.

In March 2004, the Company raised $5,000,000 in gross cash proceeds through the private placement of 20 units, at a purchase price of $200,000 per unit, and Series B senior secured convertible notes in the aggregate principal amount of $1,000,000. Each unit consisted of 50,000 shares of common stock (initially priced at $1.63 per share), a Series A senior secured convertible note in the original principal amount of $118,500 and a five-year warrant to purchase 61,350 shares of common stock. The Company issued an additional $250,000 of Series B senior secured notes in exchange for cancellation of existing short-term indebtedness in that amount. The Company issued to the Series B noteholders five-year warrants to purchase an aggregate of 383,439 shares of common stock. The exercise price for the warrants is $1.63 per share. Additionally, the Company issued one quarter unit to the lead investor’s counsel as payment for legal services. The Company allocated the proceeds from the issuance of the notes to the notes and to that subset of warrants allocated to the notes based on their relative fair values using the Black-Scholes option pricing model. The amount allocated to the warrants ($1,462,538) was recorded as a debt discount to be amortized to interest expense over the period the notes are expected to be outstanding. The notes are convertible into shares of the Company’s common stock at the election of the holders at a conversion price of $1.63 per share. Total shares of common stock issued in connection with this private placement were 1,012,500. The fair value of the warrants allocated to the common stock on a pro-rata basis has been accounted for as cost of capital.

The terms of the financing include antidilution provisions to the effect that if and whenever in the period commencing after the issuance date (March 23, 2004) and ending 24 months thereafter (March 22, 2006) (the “Antidilution Period”), the Company issues or sells, or is deemed to have issued or sold, any shares of common stock, with the exception of specific customary issuances which are excluded, for a consideration per share less than the conversion price or exercise price in effect immediately prior to such time for the relevant shares, then concurrent with such dilutive issuance, the conversion price or exercise price for the notes and warrants, as the case may be, then in effect shall be reduced to an equal amount to the new securities issuance price.

Upon stockholder approval of the private placement in May 2004, the Company recorded an additional $2,187,087 of debt discount for the instrument’s beneficial conversion feature. In addition, $18,500 of principal of each of the Series A notes was converted into common stock at $1.63 per share and $100,000, or 50%, in principal of each of the Series B notes was converted into common stock at $1.63 per share. The total principal amount for both Series converted upon approval of the stockholders was $999,625, resulting in the issuance of 613,276 shares of common stock. The Company recorded a total of $2,650,000 of the placement as equity and $2,650,000 as senior debt. The notes mature on April 1, 2009 and bear interest at the rate of 8% per annum payable quarterly in cash or stock (valued at the conversion price) at VCampus’ option for the first year. Principal and interest on the notes are payable in cash over the following four years in quarterly installments. The note holders have alleged an event of default has occurred under the notes. The Company plans to pursue negotiations with the note holders in an effort to reach an amicable resolution to the matter (see note 9).

During 2004 and 2005, an additional $512,500 and $541,809 of Series A and Series B senior secured convertible note principal was converted into 314,420 and 332,398 shares of common stock, respectively, resulting in $2,053,934 of aggregate principal from this financing converted as of December 31, 2005. During 2005, the Company made its first two regularly scheduled principal payments on the notes in cash in the aggregate amount of $210,301. The total outstanding principal remaining under these convertible notes as of December 31, 2005 amounted to $1,385,390. The total unamortized debt discount associated with these notes as of December 31, 2005 amounted to $714,105, resulting in a net liabilities balance on the notes of $671,285, of which $191,796 is classified as a current liability on the financial statements.

F-22

Interest due for the quarters ended June 30, September 30, December 31, 2004 and March 31, 2005 amounted to $205,634 and was paid through the issuance of an aggregate of 126,142 shares of common stock valued at $1.63 per share on July 1, 2004, October 1, 2004, January 1, 2005 and April 1, 2005, respectively. Interest for the quarters ended June 30 and September 30, 2005 amounted to $66,703 and was paid in cash on July 1 and October 1, 2005, respectively. Interest for the quarter ended December 31, 2005 amounted to $27,708 and is included in accrued expenses on the consolidated balance sheet.

As of December 31, 2005, future maturities of long-term debt obligations were as follows:

2006	395,826
2007	395,826
2008	395,826
2009	197,912
	$	1,385,390

9.Commitments and Contingencies

Leases

The Company leases office space and office equipment under non-cancelable operating lease agreements with various renewal options. Future minimum lease payments may be periodically adjusted based on changes in the lessors’ operating charges. Rent expense for the years ended December 31, 2003, 2004 and 2005 was $520,743, $520,710 and $521,959, respectively.

As of December 31, 2005, payments due under non-cancelable operating leases were as follows:

2006	540,778
2007	557,001
2008	573,711
2009	590,923
Thereafter	98,968
	$	2,361,381

Employment Agreements

The Company has entered into employment agreements with certain members of management. These agreements specify minimum annual salaries as well as objective-based and discretionary performance bonus amounts to be paid over the next year.

Purchase Commitment

In January 2005, the Company and a vendor extended a reseller agreement they had initially entered into in 2000, for another year. Pursuant to this extension, the Company was required to generate sales of the vendor’s courseware sufficient to generate royalties of $150,000. To satisfy its obligations under the extension, the Company paid the vendor $100,000 in cash in 2005 and was allowed to carry $50,000 of the paid-for but unsatisfied portion of its prior year commitment to this vendor into the twelve months ending January 30, 2006, which is the period of the renewal. As of December 31, 2005, the Company had fully satisfied the $150,000 commitment for the twelve months ending January 30, 2006 and owed the vendor an additional $41,763, which is included in accrued expenses on the consolidated balance sheet.

F-23

Alleged Default on Secured Convertible Notes

In February 2006, holders of a majority of the Company’s Series A and Series B secured convertible notes notified VCampus that they believe an event of default exists under the notes based on the Company’s failure to acknowledge their alleged right to have the conversion price on their notes reduced from $1.63 per share to $0.50 per share, which is the lowest potential reset conversion price for the Series A-1 Preferred Stock the Company issued to other investors in the December 2005 financing. The Company disputes the claims made by the note holders for a number of reasons, including the fact that their antidilution rights expire, pursuant to the express terms of the notes and warrants, prior to the price reset date on March 31, 2006, and hence they expire prior to the happening of the alleged event or contingency that might otherwise trigger their rights. Consequently, the Company believes the note holders’ allegations are without merit.

Litigation

In June 2002, a former employee (separated in June 1998) filed suit against the Company in Dallas County, Texas. To avoid further litigation expenses and the risk of an adverse ruling, in June 2003 the Company paid the employee $99,999 in full settlement of all the claims, including the plaintiff’s attorneys’ fees.

In June 2003, the Company and the landlord at its Rockville, Maryland facility agreed to a settlement regarding the leased space that the Company had vacated in December 2000. The Company paid the landlord a total of $300,000 (plus a $24,000 security deposit retained by the landlord) to terminate the lease agreement. As of December 31, 2002 the Company had accrued $253,051 for this liability on its consolidated balance sheet. As a result of this settlement, the Company recorded an additional amount of $73,000 which it included in restructuring and other non-recurring items on the 2003 statement of operations.

In 2002, the Virginia Department of Taxation completed an audit of the Company’s sales and use tax payments from August 1998 through October 2001. In July 2002, the Company received a draft assessment which contemplated a payment of taxes, penalties and interest by the Company of $212,719, primarily associated with the Company’s alleged failure to assess use tax on third-party royalties paid by the Company to content providers for courses we delivered online. The Company paid the sales and use tax and interest on non-contested items, which amounted to $18,928 out of the $212,719. The Company has formally contested the remaining items covered by the draft assessment, including the assessment of use tax on the royalties paid by the Company to content providers for courses the Company delivered online as well as the methodology used by the Virginia Department of Taxation to estimate the royalties. In July 2003, the assessment was reduced by the Virginia Department of Taxation to $86,678 including interest of $17,278. In October 2003, the Company appealed the assessment. In March 2004, the Company was notified that this appeal remains under review. The Company does not have a firm estimate of the probability of liability for this issue or the amount of anticipated legal costs, but has reason to believe that the potential liability will be reduced to the point where it will not be considered material. Accordingly, the Company cannot estimate at this time the amount of liability to be incurred, if any. No amounts have been accrued in the consolidated financial statements for this potential liability.

F-24

10.Composition of Certain Financial Statement Captions

Other assets consisted of the following:

	December 31,
	2004		2005
Deferred debt offering costs	$	292,206	$	149,924
Other	126,478		81,935
	$	418,684	$	231,859

Accrued expenses consisted of the following:

	December 31,
	2004		2005
Accrued payroll and payroll taxes	$	37,665	$	123,215
Accrued vacation	27,952		35,965
Deferred rent	131,508		128,440
Other	121,353		191,696
	$	318,478	$	479,316

Accrued payroll as of December 31, 2004 and 2005 primarily consists of earned but unpaid incentive compensation.

11.Stockholders’ Equity

Conversion of Preferred Stock

In June 2003, pursuant to approvals obtained at its annual meeting of stockholders, together with agreements signed by holders of its preferred stock, the Company converted all of the outstanding shares of each of its eight classes of preferred stock into a total of 3,007,453 shares of common stock. The conversions were effective on June 6, 2003 at conversion prices ranging from $2.196 to $69.82 per share. This recapitalization removed a total of approximately $24.3 million of preferred stock liquidation preference that was formerly senior to the outstanding common stock and released the Company from the obligation to pay future dividends on the converted shares. As an incentive to induce the conversions, the Company issued warrants to the preferred stockholders to purchase a total of 451,445 shares of common stock at $3.85 per share. The Company valued the warrants using the Black-Scholes option pricing model and recognized a deemed dividend of $1,042,838, which represents the excess of the fair value of the warrants issued over the fair value of the stock issuable pursuant to the original conversion terms of the securities. As part of the recapitalization, the Company also issued a warrant to a preferred shareholder to purchase 166,155 shares of common stock at $2.20 per share in exchange for the cancellation of that shareholder’s warrant to purchase an equivalent number of shares of Series E preferred stock at the equivalent exercise price. The Company valued the warrants using the Black-Scholes option pricing model and recognized a deemed dividend of $12,211 upon the cancellation of the warrants to purchase shares of Series E preferred stock.

Series C Preferred Stock

In January 2003, 11,817 shares of Series C Preferred Stock were converted into 1,433 shares of common stock. In June 2003, the remaining 611,522 shares of Series C Preferred Stock were converted into 74,122 shares of common stock.

F-25

Series D Preferred Stock

In June 2003, 1,013,809 shares of Series D Preferred Stock were converted into 101,381 shares of common stock.

Series E Preferred Stock

The Company entered into a Private Equity Line of Credit Agreement (the “Equity Line Agreement”), as amended, with Hambrecht & Quist Guaranty Finance, LLC (“H&QGF”) in May 1999. Under the Equity Line Agreement, the Company had the right, subject to certain conditions, to issue and sell to H&QGF, from time to time, shares of its Series E Convertible Preferred Stock (“Series E Preferred Stock”), for cash consideration of up to an aggregate of $7.0 million, subject to availability. The Company had the right to sell to H&QGF shares of its Series E Preferred Stock at a price equal to 85% of the lower of (1) the closing market price of the Company’s common stock on the date of issuance and (2) the average of the lowest intra-day prices of the Company’s common stock over the five-day period ending on the date of issuance. Each ten shares of Series E Preferred Stock were convertible into one share of common stock. The holders of Series E Preferred Stock were entitled to monthly dividends paid in Series E Preferred Stock, equal to 0.5% of the number of shares of Series E Preferred Stock held. The value of Series E Preferred Stock issued as dividends amounted to $3,348 for 2003.

In connection with the Equity Line Agreement, the Company issued seven-year warrants, which were fully vested, to purchase 100,000 shares of its Series E Preferred Stock to H&QGF at $2.50 per share (subsequently adjusted to 1,138,440 shares at $0.2196 per share pursuant to anti-dilution rights), and ten-year warrants, which were fully vested, to purchase 10,000 shares of its common stock at $40.00 per share to a third party. In March 2000, the Company granted H&QGF fully vested warrants to purchase 43,632 shares of Series E Preferred Stock at an exercise price of $8.50 per share (subsequently adjusted to 384,960 shares at $0.2196 per share pursuant to anti-dilution rights) in exchange for an increase in capacity and extension of the equity line. These warrants expire in November 2006. In October 2000, the Company granted H&QGF fully vested, seven-year warrants to purchase 15,000 shares of Series E Preferred Stock at an exercise price of $1.94 per share (subsequently adjusted to 132,350 shares at $0.2196 per share pursuant to anti-dilution rights) in exchange for a further increase and extension of the equity line.

During 1999, the Company drew down $859,000 under the Equity Line Agreement and issued 379,437 shares of Series E Preferred Stock at an average price of $2.26. During 2000, the Company drew down $4,382,000 under the Equity Line Agreement and issued 963,092 shares of Series E Preferred Stock at an average price of $4.55 per share. During 2001, the Company drew down $213,150 under the Equity Line Agreement and issued 187,500 shares of Series E Preferred Stock at an average price of $1.14 per share. During 2000 and 2001, 621,503 and 306,454 shares of Series E Preferred Stock were converted into 62,150 and 30,645 common shares, respectively.

In February 2001, the Equity Line Agreement was terminated. During 2001, the Company issued 60,000 shares of Series E Preferred Stock to H&QGF as consideration for the Company’s failure to keep an active registration statement effective in accordance with H&QGF’s registration rights. In April 2001, the Company regained compliance with H&QGF’s registration rights through the filing and effectiveness of a new registration statement.

In June 2003, the remaining 584,835 shares of Series E Preferred Stock were converted into 58,484 shares of common stock. Additionally, the Company issued a warrant to H&QGF to purchase 166,155 shares of common stock at $2.20 per share in exchange for the cancellation of H&QGF’s warrant to purchase an equivalent number of shares of Series E preferred stock at the equivalent exercise price.

F-26

Series F, F-1 and F-2 Preferred Stock

In June 2003, the 4,485,991 shares of Series F, F-1 and F-2 Preferred Stock outstanding were converted into 1,150,144 shares of common stock.

Series G Preferred Stock

In February 2003, the Company issued 10,125 and 226 shares of Series G Preferred Stock at a purchase price of $39.50 per share to accredited investors and a placement agent, respectively. Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 25,313 and 564 shares of common stock at $4.35 per share to the same accredited investors and placement agent, respectively. Each share of Series G Preferred Stock was initially convertible into 10 shares of common stock at any time at the election of the holder. The excess of the value of common stock into which the Series G Preferred Stock was convertible over the proceeds allocated to the Preferred Stock amounted to $48,995. Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders. The fair value of the preferred stock was estimated at the closing price of the Company’s common stock on the trading date prior to the issuance date and the fair value of the warrants was estimated at $82,267 using the Black-Scholes option pricing model.

In March 2003, the Company issued 18,370 shares of Series G Preferred Stock at a purchase price of $27.22 per share to accredited investors. Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 45,925 shares of common stock at $2.99 per share to the same accredited investors. Each share of Series G Preferred Stock was initially convertible into 10 shares of common stock at any time at the election of the holder. The excess of the value of common stock into which the Series G Preferred Stock was convertible over the proceeds allocated to the Preferred Stock amounted to $198,312. Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders. The fair value of the preferred stock was estimated at the closing price of the Company’s common stock on the trading date prior to the issuance date and the fair value of the warrants was estimated at $129,967 using the Black-Scholes option pricing model. The issuance of the Series G Preferred Stock in March 2003 triggered an antidilution adjustment in the conversion price of the Series G Preferred Stock issued in February 2003 from $3.95 to $2.72. As a result, the number of common shares potentially issuable upon conversion of the Series G Preferred Stock issued in February 2003 increased from 103,527 to 150,229. The Company recorded a deemed dividend of $184,481 in connection with this adjustment.

In June 2003, the 78,041 shares of Series G Preferred Stock outstanding were converted into 873,022 shares of common stock.

Series H Preferred Stock

In May 2003, the Company issued 7,503 shares of Series H Preferred Stock at a purchase price of $240.00 per share to accredited investors. Under the terms of this financing, the Company also issued five-year fully vested warrants to purchase 187,575 shares of common stock at $5.00 per share to the same accredited investors. Each share of Series H Preferred Stock was initially convertible into 100 shares of common stock at any time at the election of the holder. The excess of the value of common stock into which the Series H Preferred Stock was convertible over the proceeds allocated to the Preferred Stock amounted to $776,862. Such amount represented a beneficial conversion feature discount and was immediately recognized as a deemed dividend to preferred stockholders. The fair value of the preferred stock was estimated at the closing price of the Company’s common stock on the trading date prior to the issuance date and the fair value of the warrants was estimated at $455,807 using the Black-Scholes option pricing model. The issuance of the Series H Preferred Stock in May 2003 triggered an antidilution adjustment in the conversion price of the Series G Preferred Stock issued in November 2002 and in

F-27

February and March 2003 from $2.49, $2.72 and $2.72, respectively, to $2.40. As a result, the number of common shares potentially issuable upon conversion of the Series G Preferred Stock issued in those periods increased from 363,114 to 409,020. The Company recorded a deemed dividend of $124,676 in connection with this adjustment.

In June 2003, the 7,503 shares of Series H Preferred Stock outstanding were converted into 750,300 shares of common stock.

Series A-1 Preferred Stock

In December 2005, the Company issued 2,300 shares of a newly created class of Series A-1 Preferred Stock at a purchase price of $1,000 per share to a group of accredited investors. The shares of Series A-1 Preferred Stock are initially convertible into common stock at a conversion price of $1.67 per share. The conversion price is subject to a price reset on March 31, 2006 to equal $0.61 in the event that before March 31, 2006 the common stock does not trade at or above $6.00 per share for at least ten consecutive trading days after the shares of common stock issued or issuable in the financing have been registered for resale under a registration statement declared effective by the SEC. Under the terms of this financing, the Company also issued warrants to purchase 1,032,929 shares of common stock at an exercise price per share equal to the then applicable conversion price of the Series A-1 Preferred Stock. The exercise price of the warrants is subject to adjustment upon any change to the conversion price of the Series A-1 Preferred Stock. The Series A-1 Preferred Stock and the related warrants issued in this financing have price-based antidilution protection, but the Company may not issue securities at a dilutive price that would trigger such protection unless and until shareholder approval is obtained for the financing. The Company intends to solicit shareholder approval for the financing at its next annual meeting of shareholders scheduled for May 2006.

The shares of Series A-1 Preferred Stock are entitled to receive quarterly cash dividends at an annual rate of 10% and are redeemable by VCampus, at any time after effectiveness of the registration statement, for 120% of the original purchase price. None of the Series A-1 investors may hold more than 4.99% of VCampus’ outstanding shares of common stock at any given time, subject to waiver of that limitation by the Series A-1 investor upon 75 days’ notice.

The Company incurred a finder’s fee for the financing equal to 8.0% of the gross proceeds from covered investors payable in cash, plus a fee of 2.0% of proceeds from covered investors paid in shares of Series A-1 Preferred Stock, together with a warrant, with the same terms as the investors, to purchase 75,450 shares of common stock.

The Company agreed to register the resale of shares of its common stock issuable to the investors and finders upon conversion of the preferred stock and exercise of the warrants issued in the private placement.

Common Stock

In June 2003, pursuant to approvals obtained at its annual meeting of stockholders, together with agreements signed by holders of its preferred stock, the Company converted all of the outstanding shares of each of its eight classes of preferred stock into a total of 3,007,453 shares of common stock.

In September  2003, the Company raised $825,330 through the private placement of 318,660 units, at a purchase price of $2.59 per unit. In October  2003, the Company raised $200,000 through the private placement of 77,220 units, at a purchase price of $2.59 per unit. Each unit consisted of one share of common stock and a three-year warrant to purchase one share of common stock with an exercise price of $2.59 per share. Aggregate proceeds from these private placements, net of $120,000 in financing costs, amounted to $905,330. In connection with these financings, the Company paid a placement agent a fee

F-28

equivalent to 7% of the amount raised, paid in units. Under the terms of the financing, because the Company did not raise an additional $2,000,000 in equity financing by November 15, 2003, on that date the unit holders became entitled to receive additional shares of common stock as if the purchase price per share of common stock had equaled $2.00 when the units were purchased, and the exercise price of the warrants decreased to $2.00 per share. As this was a placement of common stock, the fair value of the warrants issued was accounted for as cost of capital.

During 2003, the Company issued 23,618 shares of its common stock, at an average price of $2.18 (equal to the fair market value of the stock on the date of each transaction) per share, to certain of its directors in lieu of cash compensation for their services. The Company recorded $51,487 of compensation expense in connection with these issuances.

During 2003, the Company issued 12,041 shares of its common stock at an average price of $2.49 (equal to the fair market value of the stock of the date of each transaction) to a financial advisor as a retainer fee. The Company recorded an expense related to the stock issuance of $30,000.

In March 2004, the Company raised $5,000,000 in gross cash proceeds through the private placement of 20 units, at a purchase price of $200,000 per unit, and Series B senior secured convertible notes in the aggregate principal amount of $1,000,000. Each unit consisted of 50,000 shares of common stock (initially priced at $1.63 per share), a Series A senior secured convertible note in the original principal amount of $118,500 and a five-year warrant to purchase 61,350 shares of common stock. The Company issued an additional $250,000 of Series B senior secured notes in exchange for cancellation of existing short-term indebtedness in that amount. The Company issued to the Series B noteholders five-year warrants to purchase an aggregate of 383,439 shares of common stock. The exercise price for the warrants is $1.63 per share. Additionally, the Company issued one quarter unit to the lead investor’s counsel as payment for legal services. See the disclosures in note 8, “Notes Payable” on page F-20 for further details of the March 2004 private placement.

During 2004 and 2005, the Company issued an additional 314,420 and 332,398 shares of common stock upon the conversion of $512,500 and $541,809 of Series A and Series B senior secured convertible note principal, respectively, resulting in $2,053,934 of aggregate principal from this financing converted as of December 31, 2005. During 2004 and 2005, the Company issued an additional 72,388 and 53,754 shares of common stock upon the conversion of $117,992 and $87,642 of interest on the Series A and Series B secured convertible promissory notes, respectively.

In May 2004, the Company issued 76,688 shares of common stock valued at $2.47 per share in full satisfaction of accrued financing costs of $189,419 incurred in conjunction with the March 2004 financing.

During 2004, the Company issued 1,132,617 shares of common stock upon the exercise of warrants and options with an average strike price of $1.76 per share. Net proceeds to the Company from these exercises amounted to $1,944,283.

During 2004, the Company issued 17,112 shares of its common stock, at an average price of $2.01 (equal to the fair market value of the stock on the date of each transaction) per share, to certain of its directors in lieu of cash compensation for their services. The Company recorded $34,474 of compensation expense in connection with these issuances.

During 2004, the Company issued 55,085 shares of its common stock at an average price of $1.71 (equal to the fair market value of the stock of the date of each transaction) to two financial advisors as retainer fees. The Company recorded an expense related to these stock issuances of $94,000.

In March 2005, the Company completed a private placement of its common stock. Under the terms of this private placement, the Company raised $995,950 in gross proceeds through the issuance of 611,012 shares of common stock at a purchase price of $1.63 per share to 12 accredited investors. Under the terms

F-29

of this financing, the Company also issued five-year warrants to purchase 763,765 shares of common stock with an exercise price of $1.63 per share to the same accredited investors. In connection with this financing, the Company incurred a finder’s fee of approximately $50,000, paid in 30,550 shares of common stock. As this was a placement of common stock, the fair value of the warrants issued was accounted for as cost of capital.

During 2005, the Company issued 23,263 shares of its common stock, at an average price of $1.03 (equal to the fair market value of the stock on the date of each transaction) per share, to certain of its directors in lieu of cash compensation for their services. The Company recorded $23,993 of compensation expense in connection with these issuances.

During 2005, the Company issued 80,011 shares of its common stock at an average price of $1.39 (equal to the fair market value of the stock of the date of each transaction) to two financial advisors as retainer fees. The Company recorded an expense related to these stock issuances of $111,000 of which $25,500 was recorded in 2004 and $85,500 was recorded in 2005.

Stock Option Plans

The Company adopted a stock option plan (the “Original Plan”) which permitted the Company to grant options to purchase up to 28,892 shares of Common Stock to employees, board members and others who contribute materially to the success of the Company. In November 1996, the Company’s Board of Directors decided not to grant any further options under the Original Plan.

During 1996, the Company’s Board of Directors approved a new stock plan (the “1996 Plan”), for the grant of stock awards to employees, directors and consultants. Stock options under the Original Plan and 1996 Plan are generally granted at prices which the Company’s Board of Directors believes approximates the fair market value of its common stock at the date of grant. Individual grants generally become exercisable ratably over a period of four to five years from the date of grant. The contractual terms of the options range from three to ten years from the date of grant. The 1996 Plan expires in August 2006.

Common stock option activity was as follows for the periods indicated:

	Years Ended December 31,
	2003					2004					2005
	Shares		Weighted Average Exercise Price			Shares		Weighted Average Exercise Price			Shares		Weighted Average Exercise Price
Outstanding at the beginning of the Year	299,865			$	15.03	529,243			$	7.50	1,414,047			$	3.95
Granted	307,469			2.50		1,129,544			1.94		1,240,020			0.96
Exercised	(35,659	)		2.29		(76,837	)		2.26		(75,770	)		1.11
Canceled or expired	(42,432	)		28.83		(167,903	)		2.38		(176,755	)		2.65
Outstanding at the end of the Year	529,243			7.50		1,414,047			3.95		2,401,542			2.59
Options exercisable at year-end	240,442			$	11.99	259,756			$	11.92	640,426			$	5.94

As of December 31, 2005, 52,838 shares were available for issuance under the 1996 Plan.

F-30

The following table summarizes information about fixed-price stock options outstanding at December 31, 2005:

	Options Outstanding							Options Exercisable
Range of Exercise Prices	Number Outstanding at December 31, 2005		Average Remaining Contractual Life		Weighted- Average Exercise Price			Number Exercisable at December 31, 2005		Weighted- Average Exercise Price
Less than $1.00		1,123,750		9.5		$	0.95		10,000		$	0.98
$ 1.01 – $   2.00		1,008,750		8.4		1.88			400,374		1.87
$ 2.01 – $   3.00		58,245		6.3		2.69			55,352		2.69
$ 3.01 – $   5.00		151,735		6.8		3.80			117,263		3.80
$ 5.01 – $ 10.00		9,000		5.0		7.31			8,500		7.22
$10.01 – $ 20.00		15,327		5.0		13.31			15,327		13.31
$20.01 – $180.00		34,735		3.4		64.22			33,610		65.01
		2,401,542		8.7		$	2.58		640,426		$	5.94

The weighted average fair values of the options granted in 2003 with a stock price equal to the exercise price was $2.50. The weighted average fair values of the options granted in 2004 with a stock price equal to the exercise price was $1.94. The weighted average fair values of the options granted in 2005 with a stock price equal to the exercise price was $0.96.

Warrants

The Company has also granted warrants to purchase common stock to various investors, employees and outside vendors. Warrant activity was as follows for the periods indicated (in shares of common stock):

	Years Ended December 31,
	2003		2004		2005
Outstanding at the beginning of the year	1,108,911		2,375,116		2,961,410
Granted	1,924,159		3,751,560		1,872,144
Exercised	—		(1,111,942	)	—
Canceled or expired	(657,954	)	(2,053,324	)	(154,933	)
Outstanding at the end of the year	2,375,116		2,961,410		4,678,621

Exercise prices on the outstanding warrants range from $1.63 to $70.00 per share. The weighted average grant date fair value of warrants issued in 2005 was $1.65. The fair value of each warrant grant is estimated on the date of grant using the Black-Scholes option-pricing fair value model with the following ranges of assumptions: dividend yield of 0%; expected volatility of 69% to 133%; risk-free interest rate of 4.39% to 6.50%; and expected life of the warrant term of three to seven years.

Reserve for Issuance

As of December 31, 2005, the Company had reserved 7,080,163 shares of common stock for issuance upon the exercise of outstanding options and warrants.

12.Retirement Plans

The VCampus Corporation 401(k) plan (adopted in 1997) allows employees to elect an amount between 1% and 15% of their total compensation to contribute to the plan. All full-time employees are eligible to make participation elections at any time while employed by the Company. There is a graduated vesting schedule for employer contributions in which contributions fully vest over a period of four years. The plan allows discretionary Company contributions. In 2003, 2004 and 2005, there were no discretionary Company contributions made to the plan.

F-31

13.Income Taxes

Income tax expense for the years ended December 31, 2003, 2004 and 2005 is different from the amount computed by applying the statutory federal income tax rates to losses before income tax expense. The reconciliation of these differences is as follows:

	December 31
	2003			2004			2005
Tax benefit at federal statutory rate	$	(1,108,000	)	$	(2,303,000	)	$	(2,010,000	)
State income taxes, net of federal tax effect	(158,000		)	(329,000		)	(230,000		)
Increase in valuation allowance	1,240,000			1,844,000			870,000
Other	26,000			788,000			650,000
Change in effective tax rate	—			—			720,000
Income tax expense	$	—		$	—		$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes. The Company has recognized a full valuation allowance against the deferred tax assets because the Company has determined that it is more likely than not that sufficient taxable income will not be generated during the carryforward period available under the tax law to utilize part or all of the deferred tax assets. The valuation allowance for deferred taxes increased $1,240,000, $1,844,000 and $870,000 in the years ended December 31, 2003, 2004 and 2005. Significant components of the Company’s net deferred tax assets were as follows:

	December 31,
	2004			2005
Net operating loss carryforwards	$	26,279,000		$	27,160,000
Accrued payroll	35,000			13,000
Other accruals	53,000			50,000
Other assets and liabilities	1,387,000			1,401,000
Total deferred tax assets	25,754,000			28,624,000
Valuation allowance	(27,754,000		)	(28,624,000		)
Net deferred tax assets	$	—		$	—

As of December 31, 2004 and 2005, the Company had net operating loss carryforwards for federal income tax purposes of approximately $65,000,000 and $69,700,000, respectively, which will expire at various dates through 2025. The Company may be deemed to have experienced changes in ownership which may impose limitations on its ability to utilize net operating loss carryforwards under Section 382 of the Internal Revenue Code.

F-32

14.Net Loss Per Share

The following table sets forth the computation of basic and diluted net loss per share:

	Years Ended December 31,
	2003			2004			2005
Numerator:
Net loss	$	(3,259,023	)	$	(6,579,416	)	$	(5,866,327	)
Less: Dividends accruing to preferred stockholders	(2,926,854		)	—			(14,312		)
Net loss available to common stockholders	$	(6,185,877	)	$	(6,579,416	)	$	(5,880,639	)
Denominator:
Denominator for basic earnings per share—weighted-average shares	3,423,056			6,792,321			9,266,800
Denominator for diluted earnings per share—adjusted weighted-average shares	3,423,056			6,792,321			9,266,800
Basic and diluted loss per share:
Net loss per share available to common stockholders	$	(1.81	)	$	(0.97	)	$	(0.63	)

The following equity instruments (with underlying common share numbers shown in the table) were not included in the diluted net loss per share calculation because their effect would have been anti-dilutive:

	Year ended December 31,
	2003	2004	2005
Convertible notes payable:	64,285	1,311,354	849,946
Convertible preferred stock:
Series A-1	—	—	1,402,391
Stock options	529,243	1,414,047	2,401,542
Warrants	2,375,116	2,961,410	4,678,621

15.Subsequent Events

In March 2006, the Company completed a private placement of Series B-1 convertible Preferred Stock. Under the terms of this financing, the Company raised $2,300,000 in gross proceeds through the issuance of 2,300 of Series B-1 convertible Preferred Stock at a purchase price of $1,000 per share to two accredited investors. Under the terms of this financing, the Company also issued ten-year warrants to purchase 1,000,000 shares of common stock to the same accredited investors at an exercise price per share equal to the then applicable conversion price of the Series B-1 Preferred Stock. The warrants are first exercisable commencing four years from their issuance date. Beginning three years from their date of issuance, the shares of Series B-1 Preferred Stock are convertible, at the option of their holders, into common stock based on a formula that yields a discount of between 10% and 37.5% to the last closing bid price of the common stock prior to the date of conversion, subject to a price floor of $1.64 per share. The shares of Series B-1 Preferred Stock are entitled to receive dividends paid quarterly at the greater of:  (a) an annual rate of 16%, or (b) 6% of the net sales proceeds from two courses to be mutually agreed upon by the parties. Each share of Series B-1 Preferred Stock has a liquidation preference equal to 150% of the purchase price paid for the share. The shares of Series B-1 Preferred Stock are non-voting. The Company intends to solicit shareholder approval for the financing at its 2006 annual meeting scheduled for May 2006.

F-33

16.Quarterly Sales and Earnings Data—Unaudited

The following table presents the quarterly results for VCampus Corporation and its subsidiaries for the years ended December 31, 2004 and 2005

	1st Quarter			2nd Quarter			3rd Quarter			4th Quarter
2005
Revenue	$	1,128,582		$	1,093,089		$	1,244,612		$	1,098,180
Loss from operations	(1,422,218		)	(1,230,238		)	(905,633		)	(1,152,843		)
Net loss attributable to common stockholders	(1,902,673		)	(1,456,104		)	(1,212,427		)	(1,309,435		)
Net loss per share, basic and diluted	$	(0.22	)	$	(0.15	)	$	(0.13	)	$	(0.14	)
2004
Revenue	$	1,494,052		$	1,464,944		$	917,635		$	987,228
Loss from operations	(762,493		)	(885,930		)	(1,321,648		)	(1,211,266		)
Net loss attributable to common stockholders	(789,205		)	(2,297,861		)	(1,768,487		)	(1,723,863		)
Net loss per share, basic and diluted	$	(0.15	)	$	(0.34	)	$	(0.24	)	$	(0.22	)

F-34

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNT AND RESERVE
(in thousands)

VCampus Corporation

Classification	Balance at Beginning of Period			Additions			Deductions				Balance at End of Period
Allowance for doubtful accounts:
Year ended December 31, 2003		$	31		$	9		$	(35	)(1)		$	5
Year ended December 31, 2004		5			—			—				5
Year ended December 31, 2005		5			—			—				5

(1)Uncollectible amounts written off. Net of recoveries.

F-35

EX-10.109

EXHIBIT 10.109

AMENDED CERTIFICATE OF DESIGNATIONS,

PREFERENCES AND RIGHTS

OF

SERIES A-1 CONVERTIBLE PREFERRED STOCK

OF

VCAMPUS CORPORATION

Pursuant to Section 151 of the General

Corporation Law of the State of Delaware

The undersigned officer of VCampus Corporation, a Delaware corporation (the “Corporation”), pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, does hereby make this Certificate of Amendment of the Certificate of Designations, Preferences and Rights of Series A-1 Convertible Preferred Stock, originally filed with the office of the Secretary of State of the State of Delaware on December 2, 2005, as amended on December 27, 2005 (the “Series A-1 Certificate of Designations”), and does hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the Corporation by its Certificate of Incorporation, as amended, originally filed with the office of the Secretary of State of the State of Delaware on March 22, 1985, the Board of Directors of the Corporation duly adopted the following resolutions:

RESOLVED, that the Series A-1 Certificate of Designations is hereby amended by deleting in its entirety Section 5(c) of Article II relating to “Conversion Price Resets” and substituting the following:

(c)Conversion Price Resets. If before March 31, 2006, the common stock does not trade at or above $6.00 per share (as adjusted for any stock splits, stock dividends or similar events) for at least ten (10) consecutive trading days after the Conversion Stock and the related shares of common stock issuable upon exercise of warrants held by the Series A-1 investors have been registered for resale under a registration statement declared effective by the SEC (and remains effective throughout those ten (10) consecutive trading days), then the Conversion Price shall reset on March 31, 2006 to equal $0.61 (based on the closing bid price of the common stock on December 21, 2005, as reported on the Principal Market, plus $0.10 per share to reflect the imputed value, for Nasdaq listing compliance purposes, of the warrants issued in the Series A-1 financing)(the “Reset Price”); provided, however, that if the Conversion Price adjusts to $0.61 as provided above and thereafter the Corporation’s stockholders approve the Series A-1 financing and the issuance in full of the shares of common stock issuable pursuant thereto, then the Reset Price shall, to the extent permitted by Nasdaq rules, reset to equal $0.50 from and after the date of such stockholder approval. The Reset Price shall automatically adjust for any stock splits, stock dividends or similar events.

This Amended Certificate of Designations of the Corporation has been duly adopted in accordance with Section 151 of the General Corporation Law of the State of Delaware.

The undersigned is signing this Amended Certificate of Designations on behalf of the Corporation on January 4, 2006.

	/s/ Christopher L. Nelson
Christopher L. Nelson
Chief Financial Officer

EX-10.110

Exhibit 10.110

CERTIFICATE OF DESIGNATIONS,

PREFERENCES AND RIGHTS OF

SERIES B-1 CONVERTIBLE PREFERRED STOCK

OF

VCAMPUS CORPORATION

I.Creation of Series B-1 Convertible Preferred Stock.

The undersigned officer of VCampus Corporation, a Delaware corporation (the “Corporation”), pursuant to the provisions of Section 151 of the General Corporation Law of the State of Delaware, does hereby make this Certificate of Designations, Preferences and Rights (the “Series B-1 Certificate of Designations”) and does hereby state and certify that pursuant to the authority expressly vested in the Board of Directors of the Corporation by the Certificate of Incorporation, as amended, the Board of Directors duly adopted the following resolutions:

RESOLVED, that, pursuant to the Amended and Restated Certificate of Incorporation of the Corporation (the “Amended Certificate of Incorporation”), which authorizes 171,586 shares of undesignated preferred stock, par value $0.01 per share, of which prior to the date hereof 5,000 shares have been designated as Series A-1 Convertible Preferred Stock, 2,342 of which are outstanding on the date hereof, and 166,586 shares remain undesignated, the Board of Directors is authorized, within the limitations and restrictions stated in the Amended Certificate of Incorporation, to fix by resolution or resolutions the designation of each series of preferred stock and the powers, preferences and relative participating, optional, or other special rights, and qualifications, limitations, and restrictions thereof; and

RESOLVED, that the Corporation hereby fixes the designations and preferences and relative, participating, optional, and other special rights, and qualifications, limitations, and restrictions of the preferred stock consisting of 5,000 shares to be designated Series B-1 Convertible Preferred Stock, par value $0.01 per share (the “Series B-1 Preferred Stock”); and

RESOLVED, that the Series B-1 Preferred Stock is hereby authorized on the terms and with the provisions herein set forth:

II.Provisions Relating to the Preferred Stock.

1.Rank. Subject to the rights of additional series of Preferred Stock that may be designated by the Board of Directors from time to time, the Series B-1 Preferred Stock shall, with respect to dividend rights and with respect to rights upon liquidation, winding up or dissolution, rank parri passu with the Corporation’s Series A-1 Preferred Stock and senior and prior in right to (a) each class of common stock of the Corporation, (b) any series of preferred stock hereafter created (except for any parri passu preferred stock and except as may otherwise be consented to by holders of a majority of the Series B-1 Preferred Stock) and (c) any other

equity interests (including, without limitation, warrants, stock appreciation rights, phantom stock rights, or other rights with equity features, calls or options exercisable for or convertible into such capital stock or equity interests) in the Corporation that by its terms rank junior to the Series B-1 Preferred Stock (all of such classes or series of capital stock and other equity interests, including, without limitation, all classes of common stock of the Corporation, are collectively referred to as “Junior Securities”).

2.Dividends.

(a) Amount. Subject to the parri passu rights of the holders of Series A-1 Preferred Stock and the rights of additional series of Preferred Stock that may be designated by the board from time to time and in preference to all holders of common stock, the holders of Series B-1 Preferred Stock shall be entitled to receive quarterly dividends (the “Series B-1 Dividends”) for the shares of Series B-1 Preferred Stock still then outstanding at an annual rate equal to the greater of:

(i)sixteen percent (16%) of the Series B-1 purchase price per share (as such dollar amount shall be appropriately adjusted for stock dividends, stock combinations, recapitalizations or the like); and

(ii)six percent (6%) of the Net Sales Proceeds (defined below) received by the Corporation from the sale, licensing or distribution of Covered Courses (defined below) during the applicable quarter (such 6% calculation to be prorated for any portion of the Series B-1 Preferred Stock that is redeemed or converted – for example, if 25% of the shares of Series B-1 Preferred Stock were redeemed, representing $575,000 of the original $2,300,000 Purchase Price, then the dividend calculated under this Section 2(a)(ii) would be based on 4.5% (25% less than the original 6% amount) of the Net Sales Proceeds),

(such higher amount, the “Series B-1 Quarterly Dividend Amount”), on each March 31, June 30, September 30 and December 31 (each, a “Quarterly Dividend Date”) after the date on which such shares of Series B-1 Preferred Stock were issued (the “Series B-1 Original Issue Date” for such share), provided, however, the first quarterly dividend shall not be due and payable until June 30, 2006, and provided further that the amount of dividends on the first Quarterly Dividend Date shall equal the Series B-1 Quarterly Dividend Amount multiplied by a fraction (A) the numerator of which shall equal the number of days from and including the Series B-1 Original Issue Date for such share to and including such first Quarterly Dividend Date (June 30, 2006), and (B) the denominator of which is ninety (90). The Series B-1 Dividend shall be paid in cash within 45 days after each Quarterly Dividend Date. The Corporation shall be obligated to declare and pay each quarterly dividend as set forth above; provided, however, that the Corporation is, and may continue to be, subject to:  (i) applicable Delaware law governing payment of cash dividends in the event of insolvency; and (ii) restrictions on the payment of cash dividends in the event of default under the Corporation’s 2004 Series A and Series B Senior Secured Convertible Notes due April 1, 2009, as issued in the Corporation’s March 2004 financing.

2

(b)Definitions. For purposes of this Section 2, “Net Sales Proceeds” shall mean the aggregate quarterly gross cash proceeds, if any, actually received by the Corporation from the sale, licensing, distribution or other disposition of Covered Courses, less any adjustments for third-party fees and royalties, discounts, refunds, returns, chargebacks, rebates, credit card fees, sales and use tax (including any VAT tax) and similar items paid or payable by the Corporation in connection therewith. In the event the Corporation is required or has to litigate to obtain, maintain or collect such Net Sales Proceeds, the Corporation shall be entitled to deduct reasonable attorney’s fees, costs and expenses relating thereto from the Net Sales Proceeds. “Covered Courses” shall mean two courses (whether in online or any other format used and marketed by the Corporation) that the Corporation now owns or subsequently acquires, as selected pursuant to the mutual agreement of the Corporation and the holders of a majority of the then outstanding shares of Series B-1 Preferred Stock, and the parties hereby authorize and agree to the filing of an amendment to this Certificate of Designation to evidence such mutual agreement promptly following the execution thereof.

(c)Audit and Inspection Rights. The Corporation shall maintain, so long as the Series B-1 Preferred Stock remains outstanding and for at least one (1) year thereafter, records sufficient to demonstrate its compliance with its Series B-1 Dividends obligation. The Corporation shall make such records available for inspection and copying by the Series B-1 holders or their representatives, during normal business hours upon reasonable advance notice, for the purpose of confirming the Corporation’s compliance with its obligations under this Section 2. The Series B-1 holders may at their election engage an independent public accounting firm to conduct an audit of amounts due the Series B-1 holders under this Section 2. If in the written opinion of such auditors there has been an under-reporting by the Corporation of more than ten percent (10%) of the total amounts due during any quarter, the Corporation shall pay the costs of such audit (up to $10,000) in addition to all unpaid amounts then owing.

(d)So long as any shares of Series B-1 Preferred Stock are outstanding, the Corporation will not declare, pay or set apart for payment any dividends on (except dividends payable in common stock of the Corporation), or make any other distribution on or redeem, purchase or otherwise acquire, any Junior Securities and will not permit any Subsidiary or other Affiliate (using funds of the Corporation or any Subsidiary) to redeem, purchase or otherwise acquire for value, any Junior Securities. Notwithstanding the foregoing provisions of this Section 2(b), the Corporation or any Subsidiary may (i) make payments in respect of fractional shares of Junior Securities and (ii) repurchase, redeem or otherwise acquire for value any Junior Securities from any employee or former employee of the Corporation or any Subsidiary in connection with the termination of employment by the Corporation or any Subsidiary or by such employee or former employee, whether by reason of death, disability, retirement or otherwise.

3.Liquidation. Subject to the parri passu rights of the holders of Series A-1 Preferred Stock and the rights of additional series of Preferred Stock that may be designated by the Board from time to time, upon a change in control pursuant to which the stockholders of the Corporation immediately prior to such change in control possess less than forty percent (40%) of the voting power of the acquiring entity immediately following such change in control, liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or

3

involuntary (a “Liquidation Event”), the holders of the Series B-1 Preferred Stock shall be entitled, before any assets of the Corporation shall be distributed among or paid over to the holders of Junior Securities, to receive from the assets of the Corporation available for distribution to stockholders, an amount per share equal to 150% of the purchase price per share paid for the Series B-1 Preferred Stock, as adjusted to reflect any and all subdivisions (by stock split, stock dividend or otherwise) or combinations or consolidations (by reclassification or otherwise) of the Series B-1 Preferred Stock occurring after the Issue Date, plus all declared but unpaid dividends (the “Series B-1 Liquidation Preference”). If the assets of the Corporation legally available for distribution shall be insufficient to permit the payment in full to the holders of the Series A-1 and Series B-1 Preferred Stock of their Liquidation Preferences, then the entire assets of the Corporation legally available for distribution shall be distributed ratably in accordance with the respective Series A-1 and Series B-1 Liquidation Preferences among such holders. For purposes of this Section 3, a Liquidation Event shall be deemed to be occasioned by, and to include, (i) the Corporation’s sale of all or substantially all of its assets or capital stock or (ii) any transaction or series or related transactions (including, without limitation, any reorganization, merger or consolidation, but excluding the Series B-1 financing) that will result in the holders of the outstanding voting equity securities of the Corporation immediately prior to such transaction or series of related transactions holding securities representing less than forty percent (40%) of the voting power of the surviving entity immediately following such transaction or series of related transactions.

4.Voting. Except as expressly provided by law, the shares of Series B-1 Preferred Stock shall be non-voting.

5.Conversion of Series B-1 Preferred Stock into Common Stock.

(a)Conversion Procedure.

(i)At any time after the third anniversary of the Original Series B-1 Issue Date, or otherwise at any time during the pendency of any Redemption Notice (defined below), any holder of Series B-1 Preferred Stock may convert all or any portion of the Series B-1 Preferred Stock held by such holder into a number of shares of Conversion Stock (as defined in Section 7) computed by multiplying the number of shares to be converted by the purchase price thereof and dividing the result by the Conversion Price (as defined in subsection 5(b)) then in effect.

(ii)Each voluntary conversion of Series B-1 Preferred Stock shall be deemed to have been effected as of the close of business on the date on which the notice of election of such conversion is delivered (which can be by facsimile) to the Corporation by such holder. Until the certificates representing the shares of Series B-1 Preferred Stock which are being converted have been surrendered and new certificates representing shares of the Conversion Stock shall have been issued by the Corporation, such certificate(s) evidencing the shares of Series B-1 Preferred Stock being converted shall be evidence of the issuance of such shares of Conversion Stock. At such time as such conversion has been effected, the rights of the holder of such Series B-1 Preferred Stock as such holder shall cease and the Person or Persons in whose name or names any certificate or certificates for shares of Conversion Stock are to be

4

issued upon such conversion shall be deemed to have become the holder or holders of record of the shares of Conversion Stock represented thereby.

(iii)Notwithstanding any other provision hereof, if a conversion of shares is to be made in connection with a Public Offering (as defined in Section 7), the conversion of such shares may, at the election of the holder thereof, be conditioned upon the consummation of the Public Offering, in which case such conversion shall not be deemed to be effective until the consummation of the Public Offering.

(iv)As soon as practicable, but in any event within five (5) business days, after a conversion has been duly effected in accordance with clause (i) above, the Corporation shall deliver to the converting holder:  (A) a certificate or certificates representing, in the aggregate, the number of shares of Conversion Stock issuable by reason of such conversion, in the name or names and in such denomination or denominations as the converting holder has specified; and (B) a certificate representing any shares which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted.

(v)The issuance of certificates for shares of Conversion Stock upon conversion of Series B-1 Preferred Stock shall be made without charge to the holders of such Series B-1 Preferred Stock for any issuance tax in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Conversion Stock, except for any transfer or similar tax payable as a result of issuance of a certificate to other than the registered holder of the shares being converted. Upon conversion of any shares of Series B-1 Preferred Stock, the Corporation shall use its best efforts to take all such actions as are necessary in order to insure that the Conversion Stock issuable with respect to such conversion shall be validly issued, fully paid and nonassessable.

(vi)The Corporation shall not close its books against the transfer of Series B-1 Preferred Stock or of Conversion Stock issued or issuable upon conversion of Series B-1 Preferred Stock in any manner that interferes with the timely conversion of Series B-1 Preferred Stock. The Corporation shall assist and cooperate with any holder of shares of Series B-1 Preferred Stock required to make any governmental filings or obtain any governmental approval prior to or in connection with any conversion of shares hereunder (including, without limitation, making any filings reasonably required to be made by the Corporation).

(vii)No fractional shares of Conversion Stock or scrip representing fractional shares shall be issued upon conversion of shares of Series B-1 Preferred Stock. If more than one share of Series B-1 Preferred Stock shall be surrendered for conversion at one time by the same record holder, the number of full shares of Conversion Stock issuable upon the conversion thereof shall be computed on the basis of the aggregate number of shares of Series B-1 Preferred Stock so surrendered by such record holder. Instead of any fractional share of Conversion Stock otherwise issuable upon conversion of any shares of the Series B-1 Preferred Stock, the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of current per share fair market value of the Conversion Stock as determined in good faith by the Board of Directors on such basis as it considers appropriate.

5

(viii)The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Conversion Stock, solely for the purpose of issuance upon the conversion of the Series B-1 Preferred Stock, such number of shares of Conversion Stock as are issuable upon the conversion of all outstanding Series B-1 Preferred Stock. All shares of Conversion Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges, other than those created or agreed to by the holder. The Corporation shall use its best efforts to take all such actions as may be necessary (including soliciting shareholder approval at its next annual meeting) to assure that all such shares of Conversion Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Conversion Stock may be listed (except for official notice of issuance which shall be promptly delivered by the Corporation upon each such issuance).

(b)Conversion Price. “Conversion Price” for the Series B-1 Preferred Stock shall be determined based on the following formula:

where:

y  = Conversion Price

x  = last closing bid price of the common stock prior to conversion

And when x is less than $1.64, then:

y = $1.64

And where x is between $1.63 and $2.01, then:

y = 90% of x (subject to Conversion Price floor of $1.64)

And when x is between $2.00 and $10.00, then:

y = -0.038x⁽²⁾ + 1.04x – 0.2872

And when x is $10.00 or more, then:

y  = 62.5% of x

(c)Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of common stock into a greater number of shares, or if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of common stock into a smaller number of shares, the applicable Conversion Price (and/or the numbers in the Conversion Price formula set forth above, including the Conversion Price floor) in effect immediately prior to such subdivision or combination shall be proportionately adjusted.

6

(d)Consolidation, Merger or Sale for Assets. Any consolidation, merger, sale of all or substantially all of the Corporation’s assets to another Person or other transaction which is effected in such a manner that holders of common stock are entitled to receive (either directly or upon subsequent liquidation) assets other than Conversion Stock (“Assets”) with respect to or in exchange for common stock is referred to herein as a “Fundamental Change.” Prior to the consummation of any Fundamental Change, the Corporation shall make appropriate provisions to insure that each of the holders of Series B-1 Preferred Stock shall thereafter have the right to acquire and receive, in lieu of or in addition to (as the case may be) the shares of Conversion Stock immediately theretofore acquirable and receivable upon the conversion of such holder’s Series B-1 Preferred Stock, such Assets as such holder would have received in connection with such Fundamental Change if such holder had converted its Series B-1 Preferred Stock into Conversion Stock immediately prior to such Fundamental Change. The Corporation shall not effect any Fundamental Change, consolidation, merger or sale unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from consolidation or merger or the corporation purchasing such assets assumes the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire.

(e)Notices.

(i)Promptly upon any adjustment of the applicable Conversion Price, the Corporation shall give written notice thereof to all holders of Series B-1 Preferred Stock, setting forth in reasonable detail and certifying the calculation of such adjustment.

(ii)The Corporation shall give written notice to all holders of Series B-1 Preferred Stock at least 10 days prior to the date on which the Corporation closes its books or takes a record (A) with respect to any dividend or distribution upon common stock, (B) with respect to any pro rata subscription offer to holders of common stock, or (C) for determining rights to vote with respect to any Fundamental Change, dissolution or liquidation.

(iii)The Corporation shall give written notice to the holders of Series B-1 Preferred Stock at least ten (10) days prior to the date on which any Fundamental Change shall take place, which notice may be one and the same as that required by (ii) above.

(f)Automatic Conversion.

(i)Each share of Series B-1 Preferred Stock shall automatically be converted into shares of common stock at the then applicable Conversion Price (or upon such other terms as the Corporation and holders of 75% or more of the then outstanding shares of Series B-1 Preferred Stock may agree) upon the written consent of the Corporation and holders of 75% or more of the then outstanding shares of Series B-1 Preferred Stock.

(ii)Following completion of an automatic conversion pursuant to this Section 5(f), each former holder of Series B-1 Preferred Stock shall promptly surrender to the Corporation for cancellation such holder’s Series B-1 Preferred Stock certificate(s), or lost instrument declarations and indemnifications reasonably satisfactory to the Corporation, duly endorsed. The Corporation shall have no obligation to issue certificates representing the common stock issued upon conversion until such documents are delivered to the Corporation.

7

(g)Conversion Cap. Notwithstanding any other provision herein, the Corporation shall not be obligated to issue any shares of Common Stock upon conversion of the Series B-1 Preferred Stock if and to the extent the issuance of such shares of Common Stock would exceed the number of shares (the “Exchange Cap”) then permitted to be issued without violation of the rules or regulations of the Principal Market, except that such limitation shall not apply in the event that the Corporation obtains the approval of its stockholders as required by applicable rules and regulations of the Principal Market for issuances of Common Stock in excess of the Exchange Cap. If and to the extent the Exchange Cap applies, no original purchaser of Series B-1 Preferred Stock shall be issued, upon conversion of Series B-1 Preferred Stock, shares of Common Stock in an amount greater than the product of (x) the Exchange Cap amount multiplied by (y) a fraction, the numerator of which is the number of shares of Series B-1 Preferred Stock originally issued to such Investor and the denominator of which is the aggregate amount of all the Series B-1 Preferred Stock issued to the original purchasers of such securities (the “Cap Allocation Amount”). In the event that any original holder of Series B-1 Preferred Stock shall sell or otherwise transfer any of such holder’s Series B-1 Preferred Stock, the transferee shall be allocated a pro rata portion of such holder’s Cap Allocation Amount. In the event that a requested conversion would violate the aforementioned rules, the Corporation agrees to undertake best efforts to obtain such approval within 180 days of such request for conversion.

6.Corporation Redemption Rights. At the option of the Corporation, upon at least 30 days’ written notice to the holders of Series B-1 Preferred Stock, the Corporation may redeem some or all of the Series B-1 Preferred Stock, at a redemption price equal to the following percentage of the original Series B-1 purchase price (plus all accrued but unpaid dividends):

For Redemptions Effected Before this Date	% of Purchase Price
January 1, 2007	120	%
July 1, 2007	130	%
January 1, 2008	140	%
July 1, 2008	150	%

The redemption price for any redemptions effected after July 1, 2008 shall be equal to 160% of the original Series B-1 purchase price (plus all accrued but unpaid dividends). Holders of Series B-1 Preferred Stock shall be entitled to convert their shares of Series B-1 Preferred Stock into common stock during the 30-day notice period of this Section 6. Prior to the date fixed for any redemption of shares, a notice (the “Redemption Notice”) specifying the time and place of the redemption and the number of shares to be redeemed shall be given by overnight courier or by certified mail return receipt requested, to the holders of record of the shares of Series B-1 Preferred Stock to be redeemed at their respective addresses as the same shall appear on the books of the Corporation, calling upon each holder of record to surrender to the Corporation on the redemption date at the place designated in the notice such holder’s certificate or certificates representing the number of shares specified in the notice of redemption; provided, however, the Corporation cannot provide notice of redemption unless and until the Corporation has available

8

cash to effect the redemption and the registration statement covering the resale of the Conversion Stock has been declared effective and, to the extent required by the Registration Rights Agreement dated as of the Closing Date, remains effective. Neither failure to mail such notice, nor any defect therein or in the mailing thereof, to any particular holder shall affect the sufficiency of the notice or the validity of the proceedings for redemption with respect to the other holders. Any notice mailed in the manner herein provided shall be conclusively presumed to have been duly given whether or not the holder receives the notice. On or after the redemption date, each holder of shares of Series B-1 Preferred Stock to be redeemed shall present and surrender such holder’s certificate or certificates for such shares to the Corporation at the place designated in the redemption notice and thereupon the redemption price of the shares, and any accumulated and unpaid dividends thereon to the redemption date, shall be paid to or on the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled. In case fewer than all the shares represented by any such certificate are redeemed, a new certificate shall be issued representing the unredeemed shares.

7.Definitions. The following terms have the meanings specified below:

(a)Affiliate. The term “Affiliate” shall mean (i) any Person directly or indirectly controlling, controlled by or under direct or indirect common control with the Corporation (or other specified Person), (ii) any Person who is a beneficial owner of at least 10% of the then outstanding voting capital stock (or options, warrants or other securities which, after giving effect to the exercise thereof, would entitle the holder thereof to hold at least 10% of the then outstanding voting capital stock) of the Corporation (or other Specified Person), (iii) any director or executive officer of the Corporation (or other Specified Person) or Person of which the Corporation (or other Specified Person) shall, directly or indirectly, either beneficially or of record, own at least 10% of the then outstanding equity securities of such Person, and (iv) in the case of Persons specified above who are individuals, Family Members of such Person; provided, however, that no holder of Preferred Stock nor any of their designated members of the Board of Directors shall be an Affiliate of the Corporation for purposes hereof.

(b)Board of Directors. The term “Board of Directors” shall mean the Board of Directors of the Corporation.

(c)Conversion Stock. The term “Conversion Stock” shall mean the shares of common stock issuable upon conversion of shares of Series B-1 Preferred Stock; provided that if there is a change such that the securities issuable upon conversion of the Series B-1 Preferred Stock are issued by an entity other than the Corporation or there is a change in the class of securities so issuable, then the term “Conversion Stock” shall mean shares of the security issuable upon conversion of the Series B-1 Preferred Stock if such security is issuable in shares, or shall mean the smallest unit in which such security is issuable if such security is not issuable in shares.

(d)Family Members. The term “Family Members” shall mean, as applied to any individual, any spouse, child, grandchild, parent, brother or sister thereof or any spouse of any of the foregoing, and each trust created for the benefit of one or more of such Persons (other

9

than any trust administered by an independent trustee) and each custodian of property of one or more such Persons.

(e)Person. The term “Person” shall mean an individual, corporation, partnership, limited liability company, association, trust, joint venture or unincorporated organization or any government, governmental department or any agency or political subdivision thereof.

(f)“Principal Market” means the American Stock Exchange, the New York Stock Exchange, the Nasdaq National Market, the Nasdaq Capital Market, or the Nasdaq OTC Bulletin Board, whichever is at the applicable time the principal trading exchange or market for the common stock, based upon share volume.

(g)Public Offering. The term “Public Offering” shall mean any offering by the Corporation of its equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as amended, or any successor federal statute, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder, all as the same shall be in effect from time to time, or any comparable statement under any similar federal statute then in force, other than an offering in connection with an employee benefit plan.

(h)Subsidiary. The term “Subsidiary” shall mean any Person of which the Corporation shall at the time own, directly or indirectly through another Subsidiary, 50% or more of the outstanding voting capital stock (or other shares of beneficial interest with voting rights), or which the Corporation shall otherwise control.

10

IN WITNESS WHEREOF, VCampus Corporation has caused this certificate to be signed by its duly authorized officer as of the 13th day of March 2006.

VCAMPUS CORPORATION
By:	/s/ Christopher L. Nelson
Name:		Christopher L. Nelson
Title:		Chief Financial Officer

11

EX-10.111

Exhibit 10.111

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR BY THE SECURITIES REGULATORY AUTHORITY OF ANY OTHER JURISDICTION, NOR HAS ANY COMMISSION OR AUTHORITY PASSED UPON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL. THE SHARES MAY NOT BE TRANSFERRED OR RESOLD IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

SUBSCRIPTION AGREEMENT

Series B-1 Preferred Stock

VCAMPUS CORPORATION

1.             Subscription. VCampus Corporation (the “Company”) is authorized to issue and sell up to 5,000 shares of its Series B-1 Convertible Preferred Stock (the “Series B-1 Preferred Stock”), having substantially the rights, preferences, privileges and restrictions set forth in the Certificate of Designations of the Series B-1 Preferred Stock in substantially the form attached hereto as Exhibit A. The undersigned (hereinafter referred to as “Subscriber”) hereby subscribes for and agrees to purchase the number of shares of Series B-1 Preferred Stock of VCampus Corporation (the “Company”), par value $0.01 per share, set forth on the signature page hereto (the “Shares”) in consideration for payment by the Subscriber of a per Share purchase price of $1,000 (the “Purchase Price”) pursuant to this Subscription Agreement (the “Agreement”). The Subscriber herewith tenders the entire amount of such purchase price by check or wire transfer payable to the order of the Company.

The Subscriber acknowledges that at the time of issuance the Common Stock will not be registered under the Securities Act of 1933 (the “Act”), in reliance upon an exemption from registration contained in the Act, and that the Company’s reliance upon such exemption is based, at least partially, on the Subscriber’s representations and warranties contained in this Subscription Agreement.

2.             Acceptance or Rejection of Subscription. Subscriber acknowledges and agrees that this subscription shall not be effective until accepted in writing by the Company, and that the Company reserves the right to reject this subscription in whole or in part. The Company is raising capital through the sale of up to approximately 5,000 Shares through one or more offerings, although it reserves the right to sell any number of shares less than the 5,000 Shares authorized. Subscriptions may be rejected for insufficient documentation or for such other

reason as the Company may determine, in its sole discretion, to be in the best interests of the Company. The Company, in its sole discretion, reserves the right to close this offering at any time. In the event the Subscriber’s subscription is accepted by the Company, (the “Closing”) Subscriber’s Shares shall be issued as of the date specified by the Company at the time of acceptance.

3.             Warrants. Subscriber shall receive 10-year warrants, (the “Warrants”) in substantially the form attached hereto as Exhibit B, to purchase a number of shares of Common Stock equal to a pro rata portion of 1,000,000 shares (based on an assumed total investment of $2,300,000 for the Series B-1 Preferred Stock). The Warrants shall become exercisable beginning four years from the date of issuance at an exercise price equal to the then applicable Conversion Price for the Shares.

4.             Registration Rights. The shares of common stock issuable upon conversion of the Shares purchased hereunder (the “Conversion Shares”), together with the shares issuable upon exercise of the Warrants (the “Warrant Shares”), shall have registration rights pursuant to the Registration Rights Agreement attached hereto as Exhibit C.

5.             Subscriber’s Representations and Warranties. Subscriber represents, warrants, acknowledges and agrees to the following.

a.             Subscriber is a resident of the state indicated on the signature page hereof, is legally competent to execute this Agreement, and:

(i)if Subscriber is an individual, has his or her principal residence in such state and is at least 21 years of age; or

(ii)if Subscriber is a corporation, partnership, trust or other form of business organization, has its principal office in such state; or

(iii)if Subscriber is a corporation, partnership, trust or other form of business organization, Subscriber has not been organized for the specific purpose of acquiring the Shares.

b.             This Agreement is and shall be irrevocable, except that the Subscriber shall have no obligations hereunder in the event that the subscription is not accepted by the Company in whole or in part.

c.             The Subscriber has read this Agreement carefully and, to the extent believed necessary, has discussed the representations, warranties and agreements and the applicable limitations upon the Subscriber’s resale of the Shares, the Conversion Shares and Warrant Shares with counsel.

d.             The Subscriber understands that no federal or state agency has made any finding or determination regarding the fairness of this offering, or any recommendation or endorsement of this offering.

2

e.             The Subscriber is an “accredited investor” as defined in Rule 501 of Regulation D promulgated under the Act. Entities that are accredited investors under Rule 501 include, among others, certain banks, savings and loan associations, registered securities broker-dealers, insurance companies, registered investment companies and trusts. Individuals that are accredited investors under Rule 501 include, among others, any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds $1 million; or who had income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and who has a reasonable expectation of reaching the same income level in the current year.

f.              The Subscriber has received from the Company or others and has read copies of the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”), and has had an adequate opportunity to ask questions of and receive answers from the Company regarding these documents (the “SEC Filings”).

g.             The Subscriber represents that the Subscriber, if an individual, has adequate means of providing for his/her current needs and personal and family contingencies and has no need for liquidity in his/her investment in this offering.

h.             The Subscriber is financially able to bear the economic risk of this investment, including the ability to afford holding the Shares, the Conversion Shares, the Warrants and Warrant Shares (collectively, the “Securities”) for an indefinite period, or to afford a complete loss of its investment.

i.              The Subscriber is purchasing the Securities for the Subscriber’s own account, and not for the purpose of reselling or otherwise participating, directly or indirectly, in a distribution of the Securities, and shall not make any sale, transfer or other disposition of any portion of the Securities purchased hereby without registration under the Act and any applicable securities act of any state or unless an exemption from registration is available under such acts.

j.              The Subscriber’s overall commitment to investments that are not readily marketable is not disproportionate to the Subscriber’s net worth, and the Subscriber’s investment in the Securities will not cause such overall commitment to become excessive.

k.             The Subscriber understands that an investment in the Securities is a highly illiquid investment, and that, the Subscriber will have to bear the economic risk of the investment indefinitely (or at least until such shares may become registered for resale as provided under this Agreement) because the Securities have not been registered under the Act and are being issued pursuant to a private placement exemption under Regulation D, on the grounds that no public offering is involved. Therefore, the Securities cannot be offered, sold, transferred, pledged or otherwise disposed of to any person, unless either it is subsequently registered under the Act and applicable state securities laws or an exemption from registration is available and the Subscriber obtains a favorable opinion of the Company’s counsel to that effect.

3

l.              Prior to registration of the Shares by the Company pursuant to Section 4 hereof or the availability of another exemption that might be available to the Subscriber, the Subscriber understands that the provisions of Rule 144 promulgated under the Act are not available for at least one (1) year to permit resale of the Securities, and there can be no assurance that the conditions necessary to permit routine sales of the Securities under Rule 144 will ever be satisfied, and, if Rule 144 should become available, routine sales made in reliance on its provisions could be made only in limited amounts and in accordance with the terms and conditions of the Rule. The Subscriber further understands that in connection with sales for which Rule 144 is not available, compliance with some other registration exemption will be required, which may not be available.

m.            The Subscriber understands and agrees that stop transfer instructions will be given to the Company’s transfer agent or the officer in charge of its stock records and noted on the appropriate records of the Company to the effect that the Securities may not be transferred out of the Subscriber’s name unless either the Securities become registered for resale under the Act or it is established to the satisfaction of counsel for the Company that an exemption from the registration provisions of the Act and applicable state securities laws is available therefor. The Subscriber further agrees that there will be placed on the certificates for the Shares and Warrant Shares, or any substitutions therefore, a legend stating in substance as follows, that the Subscriber understands and agrees that the Company may refuse to permit the transfer of the stock out of its name and that the stock must be held indefinitely in the absence of compliance with the terms of such legend.

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE CORPORATION RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE COUNSEL FOR THE CORPORATION) REASONABLY SATISFACTORY TO IT THAT SUCH TRANSFER MAY BE MADE IN COMPLIANCE WITH APPLICABLE FEDERAL AND STATE SECURITIES LAWS AND REGULATIONS.

n.             The Subscriber has been given the opportunity to review the Company’s SEC Filings, and to ask questions of, and receive answers from, Company representatives concerning the Company and the terms and conditions of the offering and to obtain such other information as the Subscriber desires in order to evaluate an investment in the Securities.

o.             The Subscriber did not learn of the investment in the Securities as a result of any public advertising or general solicitation.

6.             Company Representations and Warranties. Except as disclosed in the Company’s SEC Filings, the Company represents and warrants to the Subscriber as follows:

4

a.Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own and operate its properties and assets and to carry on its business as now conducted. The Company is duly qualified and authorized to do business, and is in good standing as a foreign corporation, in Virginia and in each other jurisdiction where the nature of its activities and of its properties makes such qualification necessary, except where a failure to do so would not have a material adverse effect on the Company.

b.Capitalization. The authorized and outstanding capital of the Company, as of immediately prior to filing of the Certificate of Designation of the Series B-1 Preferred Stock, consisted of:  167,586 shares of undesignated and unissued Preferred Stock, $0.01 par value per share, 5,000 authorized shares of Series A-1 Preferred Stock, of which 2,342 shares were issued and outstanding; and 36,000,000 shares of Common Stock, $0.01 par value per share, 9,613,512 of which were issued and outstanding.

All of the outstanding shares of Common Stock and Preferred Stock that have been duly authorized and validly issued are fully paid and nonassessable and were issued in compliance with all applicable federal and state securities laws. The Company has duly and validly reserved the Conversion Shares, the Shares and Warrant Shares for issuance as contemplated hereby. Except as disclosed in the SEC Filings (including the right of first refusal in favor of the March 2004 investors that does not apply to this financing), there are no outstanding rights of first refusal, preemptive rights or other rights, options, warrants, conversion rights or other agreements, either directly or indirectly, for the purchase or acquisition from the Company of any shares of its capital stock.

c.             Authorization. Except to the extent as may be required under Nasdaq Marketplace Rules to permit conversion in full of the Conversion Shares and Warrant Shares, all corporate action on the part of the Company and its directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all the Company’s obligations hereunder and thereunder, and the authorization, issuance, sale and delivery of the Securities has been taken. This Agreement, when executed and delivered by the Company and the respective other parties thereto, shall constitute a valid and legally binding obligation of the Company enforceable in accordance with its terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors, rules and laws governing specific performance, injunctive relief and other equitable remedies.

d.             Validity of the Shares. The Shares, when issued pursuant to the terms of this Agreement (and the Conversion Shares and Warrant Shares, when issued pursuant to the terms of the Certificate of Designations of the Series B-1 Preferred Stock and pursuant to the Warrants, respectively), will be validly issued, and fully paid and nonassessable and will be free of any liens or encumbrances; provided, however, that the Securities will be subject to restrictions on transfer under state and/or federal securities laws as set forth herein.

e.             Compliance with Other Instruments. The Company is not in violation of any provisions of its Certificate of Incorporation or its Bylaws as amended, or, except as

5

disclosed in the Company’s SEC Filings, of any provisions of any material agreement or any judgment, decree or order by which it is bound or any statute, rule or regulation applicable to the Company. Subject to the compliance with such filings as may be required to be made with the SEC, the National Association of Securities Dealers, Inc. (the “NASD”) and certain state securities commissions and except with respect to shareholder approval that might be deemed to be required under Nasdaq Marketplace Rules, the execution, delivery and performance of this agreement and the issuance and sale of the Shares pursuant hereto, will not result in any such violation or be in conflict with or constitute a default under any such provisions or result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company.

f.              Governmental Consents. All consents, approvals, orders or authorization of, or registrations, qualifications, designations, declarations or filings with, any federal or state governmental authority on the part of the Company required in connection with the valid execution and delivery of this agreement, the offer, sale or issuance of the Shares, or the consummation of any other transaction contemplated hereby, have been obtained (other than post-sale filings pursuant to applicable state and federal securities law).

g.             Accuracy of Reports. The SEC Filings required to be filed by the Company within the year prior to the date of this Agreement under the Securities Exchange Act of 1934 have been duly filed, were in substantial compliance with the requirements of their respective forms, were complete and correct in all material respects as of the dates at which the information was furnished, and contained (as of such dates) no untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

h.             Disclosure. No representation or warranty of the Company contained in this Agreement contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading.

i.              Financial Statements and Commission Filings; Undisclosed Liabilities.

(1)           Included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 10-K”) are true and complete copies of the audited consolidated balance sheets (the “Balance Sheets”) of the Company as of December 31, 2003 and 2004, and the related audited statements of income, changes in stockholders’ equity and cash flows for the years ended December 31, 2002, 2003 and 2004 (the “Financial Statements”), accompanied by the reports of the Company’s auditors. The Financial Statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”), applied consistently with the past practices of the Company (except as may be indicated in the notes thereto), and as of their respective dates, fairly present, in all material respects, the consolidated financial position of the Company and the results of its operations as of the time and for the periods indicated therein. The Company keeps proper accounting records in which all material assets and liabilities and all material transactions of the Company are recorded in conformity with GAAP.

6

(2)           As of their respective filing dates, the financial statements of the Company included in the SEC Filings required to be filed by the Company within the year prior to the date of this Agreement complied as to form in all material respects with then applicable accounting requirements and with the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP, applied consistently with the past practices of the Company, and as of their respective dates, fairly presented in all material respects the financial position of the Company and the results of its operations as of the time and for the periods indicated therein (except as may be indicated in the notes thereto or, in the case of the unaudited statements, as permitted by Form 10-Q, and Regulations S-K and S-X of the SEC).

(3)           Since December 31, 2004, neither the Company nor any of the Company’s Subsidiaries has incurred any liabilities or obligations of any nature, whether or not accrued, absolute, contingent or otherwise, other than liabilities (i) disclosed in the SEC Filings filed prior to the date of this Agreement, (ii) adequately provided for in the Balance Sheets or disclosed in any related notes thereto, (iii) not required under GAAP to be reflected in the Balance Sheets, or disclosed in any related notes thereto, (iv) incurred in connection with this Agreement, or (v) incurred in the ordinary course of business.

j.              Litigation. Except as set forth in the Company’s SEC Filings, there are no claims, actions, suits, investigations or proceedings pending or, to the Company’s knowledge, threatened proceedings against the Company or its assets, at law or in equity, by or before any governmental authority, or by or on behalf of any third party.

k.             Investment Company. The Company is not, and following the Closing of the transactions contemplated hereunder will not be, an “investment company” within the meaning of that term under the Investment Company Act of 1940, as amended, and the rules and regulations of the SEC.

l.              Listing and Maintenance Requirements Compliance. Except as disclosed in the Company’s SEC Filings, the Company has not received notice (written or oral) from any stock exchange or market on which the Common Stock is listed to the effect that the Company is not in compliance with the continuing listing or maintenance requirements of the exchange or market.

m.            Compliance. The Company is in compliance in all material respects with all applicable laws (including the Sarbanes-Oxley At of 2002 and the rules promulgated thereunder) and all orders of, and agreements with, any governmental authority applicable to the Company or any of its assets. The Company has all permits, certificates, licenses, approvals and other authorizations required under applicable laws or necessary in connection with the conduct of its businesses, except where the failure to have such permits, certificates, licenses, approvals and other authorizations would not have a material adverse effect on the Company.

n.             No Integrated Offering. The Company has not, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under

7

circumstances that would require registration of any of the Securities under the Securities Act of 1933; nor will the Company take any action or steps that would require registration of the Securities under the Securities Act of 1933 or cause the offering of the Securities to be integrated with other offerings in a manner that would require such registration.

o.             Material Non-Public Information. Except as disclosed on Schedule 6.o attached hereto, the Company has not disclosed to the Subscriber any material non-public information that (i) if disclosed, would reasonably be expected to have a material effect on the price of the Company’s common stock or (ii) according to applicable law, rule or regulation, should have been disclosed publicly by the Company prior to the date hereof, but which has not been so disclosed. The Subscriber acknowledges and agrees that the Company’s disclosure to him of material non-public information imposes certain restrictions on his trading in Company securities.

p.             Valid Private Placement. Subject to the accuracy as to factual matters of each Subscriber’s representations in Section 5 of each Purchase Agreement, the Securities may be issued to the Subscribers pursuant to the transaction documents without registration under the Securities Act of 1933 or the securities laws of any state.

7.             Assignment. This Agreement is not transferable or assignable by the Subscriber.

8.             Expenses. The Company and the Subscriber shall bear their own expenses with respect to this Agreement and the transactions contemplated hereby.

9.             Correct Information. All information which the Subscriber has provided concerning the Subscriber or its financial position and the Subscriber’s knowledge of financial and business matters is correct and complete as of the date hereof, and if there should be any material change in such information prior to the Company’s acceptance of the subscription, the Subscriber will immediately provide the Company with such information.

10.           Miscellaneous. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof and may be amended only by a writing executed by all parties.

11.           Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

12.           Form 8-K Filing. On or before the fourth business day following the Closing, the Company shall file a Current Report or Form 8-K with the SEC describing the material terms of the transactions contemplated by this Agreement.

8

SUBSCRIPTION AGREEMENT SIGNATURE PAGE

IN WITNESS WHEREOF, the Subscriber has executed this Subscription Agreement effective on this the         day of March 2006.

$	= total payment by Subscriber
	= Number of Shares of Series B-1 Preferred Stock purchased
$1,000.00	= per share purchase price
	= Number of Warrants to be issued to Subscriber

Signature of Subscriber
	Address

Printed or typed name of Subscriber (in

exactly the form in which securities are to

be registered and issued)

Printed or Typed Name and Title of person

signing

For Company Use Only:

ACCEPTED effective on the        day of March 2006 on behalf of VCampus Corporation for                      Shares of Series B-1 Preferred Stock.

By:

Name:

Title:

EX-10.112

Exhibit 10.112

REGISTRATION RIGHTS AGREEMENT

Registration Rights Agreement, dated effective as of March 22, 2006, by and between VCampus Corporation, a Delaware corporation (the “Company”), and each of the purchasers set forth on Schedule A attached hereto (each individually, a “Purchaser” and collectively, the “Purchasers”).

W I T N E S S E T H :

WHEREAS, Company and each Purchaser have entered into a Subscription Agreement dated on or about the date hereof (the “Purchase Agreement”), pursuant to which the Company has agreed to issue and sell to the Purchasers, and the Purchasers have agreed to purchase from the Company shares of Series B-1 Preferred Stock of the Company (the “Shares”) and Warrants exercisable for common stock of the Company (the “Warrants”); and

WHEREAS, in order to induce the Purchasers to enter into the Purchase Agreement and to purchase the Shares and Warrants, the Company has agreed to provide registration rights with respect thereto;

NOW, THEREFORE, in consideration of the premises and the covenants hereinafter contained, it is agreed as follows:

1.Definitions.  Unless otherwise defined herein, terms used herein shall have the meaning ascribed to them in the Purchase Agreement, and the following shall have the following respective meanings (such meanings being equally applicable to both the singular and plural form of the terms defined):

“Agreement” shall mean this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to the Agreement as the same may be in effect at the time such reference becomes operative.

“Warrant Shares” shall mean shares of common stock issued upon exercise of the Warrants.

“Holder” shall mean (i) each Purchaser, and (ii) any other Person holding Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with this Agreement.

“Majority Holders” shall mean the Holders of a majority of the Registrable Securities.

“NASD” shall mean the National Association of Securities Dealers, Inc., or any successor corporation thereto.

“Piggy-back Registration” shall have the meaning ascribed to it in Section 3.

“Registrable Securities” shall mean the shares of common stock issuable pursuant to the Purchase Agreement, including the Warrant Shares, the shares of common stock issuable upon conversion of the Series B-1 Preferred Stock and shares of common stock which the Purchasers hereafter obtains the right to acquire pursuant to any dividend, distribution, stock split or similar transaction or rights to the extent that all of the holders of the common stock received shares of common stock; provided, however, that the aforementioned shares shall only be treated as Registrable Securities if and for so long as they have not been sold to or through a broker or underwriter in a public distribution, or only until the date on which all of the Registrable Securities can be disposed of in any three month period pursuant to Rule 144 (or any similar or analogous rule under the Securities Act of 1933).

“Registration Statement” shall mean a registration statement filed by the Company with the U.S. Securities and Exchange Commission for a public offering and sale of securities of the Company (other than a Registration Statement on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of Company pursuant to any employee benefit plan, respectively).

“Warrants” shall mean the warrants to purchase shares of the Company’s common stock issued to the Purchasers on the date hereof.

2.Mandatory Registration / Penalties for Delayed Effectiveness.  Within 90 days from the date hereof, the Company shall file a Registration Statement covering the resale of the Registrable Securities and shall thereafter use its best efforts to effect the registration under the Securities Act of the Registrable Securities for sale within 90 days after such filing, all to the extent required to permit the disposition of the Registrable Securities so registered for a period of up to two years after the Registrable Shares first become issuable upon conversion or exercise of the Series B-1 Preferred Stock and the related Warrants.  In addition, if the number of Registrable Securities increases as a result of an adjustment to the Conversion Price, then the Company shall be required to file an additional Registration Statement covering such additional shares (the “Additional Registrable Securities”) within 15 days of such increase and shall thereafter use its best efforts to effect the registration within 90 days after such filing.  If (A) the Registration Statement covering Registrable Securities is not filed within 90 days following the Closing Date (the “Filing Date”) or is not declared effective by the SEC within 180 days following the Closing Date, or within 90 days of filing in the case of Additional Registrable Securities (the “Registration Date”), or (B) except as may be provided in Section 7(a) below for an allowed Suspension Period, after a Registration Statement has been declared effective by the SEC, sales cannot be made pursuant to such Registration Statement for any reason (including without limitation by reason of a stop order, or the Company’s failure to update the Registration Statement) but except as excused pursuant to 7(a) below or in the event the Registrable Securities are not then issuable, then the Company will pay to the Purchaser, as liquidated damages and not as a penalty, cash in

the amount of one percent (1%) of the purchase price paid by the Purchaser for the Shares for each 30 day calendar period during which any of the events described in (A) or (B) above occurs and is continuing (the “Blackout Period”).  Each such issuance shall be made within five (5) days of the end of each month of the Blackout Period until the termination of the Blackout Period.  The Blackout Period shall terminate upon the effectiveness of the applicable Registration Statement in the case of (A) and (B) above.

3.Piggy-back Registration.  If the Company at any time proposes to file a registration statement under the Securities Act on any form (other than a Registration Statement on Form S-4 or S-8 or any successor form for securities to be offered in a transaction of the type referred to in Rule 145 under the Securities Act or to employees of Company pursuant to any employee benefit plan, respectively) for the general registration of securities (a “Piggy-back Registration Statement”), it will give written notice to all Holders at least 15 days before the initial filing with the SEC of such Piggy-back Registration Statement, which notice shall set forth the intended method of disposition of the securities proposed to be registered by Company.  The notice shall offer to include in such filing the aggregate number of shares of Registrable Securities as such Holders may request.

Each Holder desiring to have Registrable Securities registered under this Section 3 shall advise Company in writing within 5 Business Days after the date of receipt of such offer from Company, setting forth the amount of such Registrable Securities for which registration is requested.  Company shall thereupon include in such filing the number of shares of Registrable Securities for which registration is so requested, subject to the next sentence, and shall use its best efforts to effect registration under the Securities Act of such shares.  In connection with any registration subject to this Section 3, which is to be effected in a firm commitment underwriting, Company will not be required to include Registrable Securities in such underwriting unless the Holder of such Registrable Securities accepts the terms and conditions of the underwriting agreement which is agreed upon between Company and the managing underwriter selected by Company, so long as such underwriting agreement conforms to industry standards and practices and the obligations and liabilities imposed on the Holders under such agreement are customary for the stockholders selling securities in an underwritten offering.  If the managing underwriter of a proposed public offering shall advise Company in writing that, in its opinion, the distribution of the Registrable Securities requested to be included in the registration concurrently with the securities being registered by Company would materially and adversely affect the distribution of such securities by Company, then all selling security holders with piggy-back registration rights shall reduce the amount of securities each intended to distribute through such offering on a pro rata basis.  Except as otherwise provided in Section 5, all expenses of such registration shall be borne by Company.  The Company shall have the right to terminate or withdraw any Registration Statement initiated under this Section 3 prior to the effectiveness of such Registration Statement whether or not the Holders have elected to include Registrable Securities in such Registration Statement.

4.Registration Procedures. If the Company is required by the provisions of Section 2 or 3 to use its best efforts to effect the registration of any of its securities under the Securities Act, Company will, as expeditiously as possible:

(a)prepare and file with the SEC a Registration Statement with respect to such securities and use its best efforts to cause such Registration Statement to become and remain effective for a period of time required for the disposition of such securities by the holders thereof, but not to exceed two years (or, with respect to any underwritten offering, such shorter period as the underwriters need to complete the distribution of the registered offering or, with respect to a shelf Registration Statement on a form under the Securities Act relating to the offer and sale of Registrable Securities from time to time in accordance with Rule 415, such longer period as may be required to dispose of the Registrable Securities covered by such Registration Statement);

(b)prepare and file with the SEC such amendments and supplements to such Registration Statement and the prospectus used in connection therewith as may be necessary to keep such Registration Statement effective and to comply with the provisions of the Securities Act with respect to the sale or other disposition of all securities covered by such Registration Statement until the earlier of such time as all of such securities have been disposed of in a public offering or the expiration of two years;

(c)furnish, to such selling security holders such number of copies of a summary prospectus or other prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents, as such selling security holders may reasonably request;

(d)use its best efforts to register or qualify the securities covered by such Registration Statement under such other securities or blue sky laws of such jurisdictions within the United States and Puerto Rico as each holder of such securities shall request (provided, however, that Company shall not be obligated to qualify as a foreign corporation to do business under the laws of any jurisdiction in which it is not then qualified or to file any general consent to service or process), and do such other reasonable acts and things as may be required of it to enable such holder to consummate the disposition in such jurisdiction of the securities covered by such Registration Statement;

(e)enter into customary agreements (including an underwriting agreement in customary form) and take such other actions as are reasonably required in order to expedite or facilitate the disposition of such Registrable Securities;

(f)otherwise use its best efforts to comply with all applicable rules and regulations of the SEC, and make available to its security holders, as soon as reasonably practicable, but not later than 18 months after the effective date of the Registration Statement, an earnings statement covering the period of at least 12 months beginning with the first full month after the effective date of such Registration Statement, which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act;

(g)give written notice to Holders:

(i)when such Registration Statement or any amendment thereto has been filed with the SEC and when such Registration Statement or any post-effective amendment thereto has become effective;

(ii)of any request by the SEC for amendments or supplements to such Registration Statement or the prospectus included therein or for additional information;

(iii)of the issuance by the SEC of any stop order suspending the effectiveness of such Registration Statement or the initiation of any proceedings for that purpose;

(iv)of the receipt by Company or its legal counsel of any notification with respect to the suspension of the qualification of the common stock for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose; and

(v)of the happening of any event that requires Company to make changes in such Registration Statement or the prospectus in order to make the statements therein not misleading (which notice shall be accompanied by an instruction to suspend the use of the prospectus until the requisite changes have been made);

(h)use its best efforts to prevent the issuance or obtain the withdrawal of any order suspending the effectiveness of such Registration Statement at the earliest possible time;

(i)furnish to each Holder, without charge, at least one copy of such Registration Statement and any post-effective amendment thereto, including financial statements and schedules, and, if the Holder so requests in writing, all exhibits (including those, if any, incorporated by reference);

(j)subject to continued effectiveness of the Registration Statement or availability of an exemption from registration, to cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold free of any restrictive legends and in such denominations and registered in such names as the Holders may reasonably request; and

(k)upon the occurrence of any event contemplated by Section 4(g)(v) above, promptly prepare a post-effective amendment to such Registration Statement or a supplement to the related prospectus or file any other required document so that, as thereafter delivered to Holders, the prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.  If the

Company notifies the Holders in accordance with Section 4(g)(v) above to suspend the use of the prospectus until the requisite changes to the prospectus have been made, then the Holders shall suspend use of such prospectus, and the period of effectiveness of such Registration Statement provided for above shall each be extended by the number of days from and including the date of the giving of such notice to Holders shall have received such amended or supplemented prospectus pursuant to this Section 4(k).

It shall be a condition precedent to the obligation of Company to take any action pursuant to this Agreement in respect of the securities which are to be registered at the request of any Holder that such Holder shall furnish to Company such information regarding the securities held by such Holder and the intended method of disposition thereof as Company shall reasonably request and as shall be required in connection with the action taken by Company.

5.Expenses.  All expenses incurred in complying with this Agreement, including, without limitation, all registration and filing fees (including all expenses incident to filing with the NASD), printing expenses, fees and disbursements of counsel for Company, expenses of any special audits incident to or required by any such registration and expenses of complying with the securities or blue sky laws of any jurisdiction pursuant to Section 4(d), shall be paid by Company, except that:

(a)all such expenses in connection with any amendment or supplement to a Registration Statement or prospectus required to be filed pursuant to Section 3 which is filed more than one year after the effective date of such Registration Statement because any Holder has not effected the disposition of the securities requested to be registered shall be paid by such Holder; and

(b)Company shall not be liable for any fees, discounts or commissions to any underwriter or any fees or disbursements of counsel for any underwriter in respect of the securities sold by such Holder. 

6.Indemnification and Contribution.

(a)In the event of any registration of any Registrable Securities under the Securities Act pursuant to this Agreement, Company shall indemnify and hold harmless the holder of such Registrable Securities, such holder’s directors and officers, and each other person (including each underwriter) who participated in the offering of such Registrable Securities and each other person, if any, who controls such holder or such participating person within the meaning of the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which such holder or any such director or officer or participating person or controlling person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon (i) any alleged untrue

statement of any material fact contained, on the effective date thereof, in any Registration Statement under which such securities were registered under the Securities Act, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto, or (ii) any alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and shall reimburse such holder or such director, officer or participating person or controlling person for any legal or any other expenses reasonably incurred by such holder or such director, officer or participating person or controlling person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon any actual or alleged untrue statement or actual or alleged omission made in such Registration Statement, preliminary prospectus, prospectus or amendment or supplement in reliance upon and in conformity with written information furnished to Company by such holder specifically for use therein or (in the case of any underwritten offering) so furnished for such purposes by any underwriter.  Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such holder or such director, officer or participating person or controlling person, and shall survive the transfer of such securities by such holder.

(b)Each Holder, by acceptance hereof, agrees to indemnify and hold harmless Company, its directors and officers and each other person, if any, who controls Company within the meaning of the Securities Act against any losses, claims, damages or liabilities, joint or several, to which Company or any such director or officer or any such person may become subject under the Securities Act or any other statute or at common law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon information in writing provided to Company by such Holder specifically for use in the following documents and contained, on the effective date thereof, in any Registration Statement under which securities were registered under the Securities Act at the request of such holder, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereto.  Notwithstanding the provisions of this paragraph (b) or paragraph (c) below, no Holder shall be required to indemnify any person pursuant to this Section 6 or to contribute pursuant to paragraph (c) below in an amount in excess of the amount of the aggregate net proceeds received by such Holder in connection with any such registration under the Securities Act.

(c)If the indemnification provided for in this Section 6 from the indemnifying party is unavailable to an indemnified party hereunder in respect of any

losses, claims, damages, liabilities or expenses referred to therein, then the indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party and indemnified parties in connection with the actions which resulted in such losses, claims, damages, liabilities or expenses, as well as any other relevant equitable considerations.  The relative fault of such indemnifying party and indemnified parties shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made by, or relates to information supplied by, such indemnifying party or indemnified parties, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such action.  The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and expenses referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such party in connection with any investigation or proceeding.

The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 6(c) were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph.  No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.

7.Certain Limitations on Registration Rights.  Notwithstanding the other provisions of this Agreement:

(a)Company shall have the right to delay the filing or effectiveness of, or by written notice require the Holders to cease sales of Registrable Securities pursuant to, a Registration Statement required pursuant to this Agreement during one or more periods aggregating not more than 60 days in any twelve-month period (such period or periods, the “Suspension Period”) in the event that (i) Company would, in accordance with the advice of its counsel, be required to disclose in the prospectus information not otherwise then required by law to be publicly disclosed, (ii) in the judgment of Company’s Board of Directors, there is a reasonable likelihood that such disclosure, or any other action to be taken in connection with the prospectus, would materially and adversely affect any existing or prospective material business situation, transaction or negotiation or otherwise materially and adversely affect Company, or (iii) the Registration Statement can no longer be used under the Securities Act;

provided that the period of effectiveness of the Registration Statement shall be extended by the length of any such Suspension Period;

(b)If Company suspends the Registration Statement or requires the Holders to cease sales of the common stock pursuant to paragraph (a) above, Company shall, as promptly as practicable following the termination of the circumstances which entitled Company to do so, take such action as may be necessary to reinstate the effectiveness of the Registration Statement and/or give written notice to all Holders authorizing them to resume sales pursuant to the Registration Statement.  If, as a result thereof, the prospectus included in the Registration Statement has been amended to comply with the requirements of the Securities Act, Company shall enclose such revised prospectus with a notice to Holders given pursuant to this paragraph (b), and the Shareholders shall make no offers or sales of shares pursuant to such Registration Statement other than by means of such revised prospectus.

8.Restrictions on Sale After Public Offering.  Except for transfers made in transactions exempt from the registration requirements under the Securities Act, Company and each Holder hereby agree not to offer, sell, contract to sell or otherwise dispose of any of their Registrable Securities within 120 days after the date of any final prospectus relating to the public offering of common stock, if underwritten, whether by Company or by any Holders, except pursuant to such prospectus or with the written consent of the managing underwriter or underwriters for such offering.

9.Miscellaneous.

(a)Amendments and Waivers.  Except as otherwise provided herein, the provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to departure from the provisions hereof may not be given without the written consent of the Majority Holders and the Company.

(b)Notice Generally.  Any notice, demand, request, consent, approval, declaration, delivery or other communication hereunder to be made pursuant to the provisions of this Agreement shall be sufficiently given or made if in writing and either delivered in person with receipt acknowledged or sent by registered or certified mail, return receipt requested, postage prepaid, or by telecopy and confirmed by telecopy answerback, addressed as follows:

(i)If to any Holder, at its last known address appearing on the books of Company maintained for such purpose.

(ii)If to Company, at

VCampus Corporation

Suite 200

1850 Centennial Park Drive

Reston, VA 20191

Attention:  Chief Financial Officer

Telecopy Number:  (703) 654-7311

with a copy to

Maupin Taylor, P.A

3200 Beechleaf Court

Suite 500

Raleigh, NC 27604

Attn:  Kevin A. Prakke, Esq.

or at such other address as may be substituted by notice given as herein provided.  The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice.  Every notice, demand, request, consent, approval, declaration, delivery or other communication hereunder shall be deemed to have been duly given or served on the date on which personally delivered, with receipt acknowledged, telecopied and confirmed by telecopy answerback or three Business Days after the same shall have been deposited in the United States mail.

(c)Successors and Assigns.  This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto including any person to whom Registrable Securities are transferred.

(d)Headings.  The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof.

(e)Governing Law; Jurisdiction.  This Agreement shall be governed by, construed and enforced in accordance with the laws of the State of Delaware without giving effect to the conflict of laws provisions thereof.

(f)Severability.  Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(g)Entire Agreement.  This Agreement, together with the Purchase Agreement, the Series A-1 Certificate of Designations and Warrants, represents the complete agreement and understanding of the parties hereto in respect of the subject

matter contained herein and therein.  This Agreement supersedes all prior agreements and understandings between the parties with respect to the subject matter hereof.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, the parties hereto have executed this Registration Rights Agreement as of the date first above written.

COMPANY:	VCAMPUS CORPORATION
	By:
		Name: Christopher Nelson
		Title: Chief Financial Officer
PURCHASERS:
	By:
	Name:
	Title:
	By:
	Name:
	Title:
	By:
	Name:
	Title:

SCHEDULE A

Schedule of Purchasers

EX-10.113

Exhibit 10.113

THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER ANY STATE SECURITIES LAWS, IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION FOR NON-PUBLIC OFFERINGS. THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED UNLESS IT IS REGISTERED UNDER THE ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO IT THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

No. W-

Issuance Date:  March 22, 2006

VCAMPUS CORPORATION

PURCHASE WARRANT

WARRANT TO PURCHASE SHARES OF COMMON STOCK

This is to certify that, FOR VALUE RECEIVED, [Name of Purchaser] (“Warrantholder”), is entitled to purchase, subject to the provisions of this Warrant, from VCampus Corporation, a corporation organized under the laws of Delaware (“Company”), at any time and from time to time commencing four years from the Issuance Date (“Exercise Date”), but not later than 5:00 P.M., Eastern time, on the tenth (10^th) anniversary of the Issuance Date (the “Expiration Date”), a total of [pro rata portion of 1,000,000 shares based on total of $2.3 million investment] shares (“Warrant Shares”) of Common Stock, $0.01 par value per share (“Common Stock”), of the Company, at an exercise price per share equal to the then applicable conversion price of the Company’s Series B-1 Preferred Stock. The exercise price in effect from time to time is hereafter called the “Warrant Price”. The number of Warrant Shares purchasable upon exercise of this Warrant and the Warrant Price shall be subject to adjustment from time to time as described herein.

This Warrant has been issued pursuant to the terms of the Subscription Agreement (“Purchase Agreement”) dated on or about the date hereof between the Company and the Warrantholder. Capitalized terms used herein and not defined shall have the meaning specified in the Purchase Agreement.

Section 1.  Registration. The Company shall maintain books for the transfer and registration of the Warrant. Upon the initial issuance of the Warrant, the Company shall issue and register the Warrant in the name of the Warrantholder.

Section 2.  Transfers. As provided herein, this Warrant may be transferred only pursuant to a registration statement filed under the Securities Act of 1933, as amended (“Securities Act”) or an exemption from registration thereunder. Subject to such restrictions, the Company shall transfer this Warrant from time to time, upon the books to be maintained by the Company for that purpose, upon surrender hereof for transfer properly endorsed or accompanied

by appropriate instructions for transfer upon any such transfer, and a new Warrant shall be issued to the transferee and the surrendered Warrant shall be canceled by the Company.

Section 3.  Exercise of Warrant.

(a)Subject to the provisions hereof, the Warrantholder may exercise this Warrant in whole or in part at any time and from time to time on and after the Exercise Date and ending on the Expiration Date, upon surrender of the original of this Warrant, together with delivery of the duly executed Warrant exercise form attached hereto (the “Exercise Agreement”) (which may be by fax), to the Company during normal business hours on any business day at the Company’s principal executive offices (or such other office or agency of the Company as it may designate by notice to the holder hereof), and upon payment to the Company in cash, by certified or official bank check or by wire transfer for the account of the Company of the Warrant Price for the Warrant Shares specified in the Exercise Agreement. The Warrant Shares so purchased shall be deemed to be issued to the holder hereof or such holder’s designee, as the record owner of such shares, as of the close of business on the date on which the completed Exercise Agreement and original of this Warrant shall have been delivered to the Company (or such later date as may be specified in the Exercise Agreement). Certificates for the Warrant Shares so purchased, representing the aggregate number of shares specified in the Exercise Agreement, shall be delivered to the holder hereof within a reasonable time after this Warrant shall have been so exercised. The certificates so delivered shall be in such denominations as may be requested by the holder hereof and shall be registered in the name of such holder or such other name as shall be designated by such holder. If this Warrant shall have been exercised only in part, then, unless this Warrant has expired, the Company shall (subject to Section 3(b) below), at its expense, at the time of delivery of such certificates, deliver to the holder a new Warrant representing the number of shares with respect to which this Warrant shall not then have been exercised. In lieu of delivering physical certificates representing the shares of Common Stock issuable upon exercise of this Warrant, provided the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program and such certificates can be issued without restrictive legends in accordance with applicable securities laws, upon request of the Warrantholder, the Company shall use commercially reasonable efforts to cause its transfer agent to electronically transmit such shares issuable upon exercise to the Warrantholder (or its designee), by crediting the account of the Warrantholder’s (or such designee’s) prime broker with DTC through its Deposit Withdrawal Agent Commission system (provided that the same time periods herein as for stock certificates shall apply).

(b)the holder of this Warrant may, at its election exercised in its sole discretion, exercise this Warrant and, in lieu of making the cash payment otherwise contemplated to be made to the Company upon such exercise in payment of the Warrant Price for the Warrant Shares specified in the Exercise Agreement, elect instead to receive upon such exercise the “Net Number” of shares of Common Stock determined according to the following formula (a “Cashless Exercise”):

2

Net Number =	(A x B) - (A x C)
	B

For purposes of the foregoing formula:

A= the total number of shares with respect to which this Warrant is then being exercised.

B= the average of the Closing Sale Price of the Common Stock over the five Trading Days immediately preceding the date of the Exercise Notice.

C= the Warrant Price then in effect for the applicable Warrant Shares at the time of such exercise.

Section 4.  Compliance with the Securities Act of 1933. Neither this Warrant nor the Common Stock issued upon exercise hereof nor any other security issued or issuable upon exercise of this Warrant may be offered or sold except as provided in this Warrant and in conformity with the Securities Act of 1933, as amended, and then only against receipt of an agreement of such person to whom such offer of sale is made to comply with the provisions of this Section 4 with respect to any resale or other disposition of such security. The Company may cause the legend set forth on the first page of this Warrant to be set forth on each Warrant or similar legend on any security issued or issuable upon exercise of this Warrant until the Warrant Shares have been registered for resale under the Registration Rights Agreement or until Rule 144 is available, unless counsel for the Company is of the opinion as to any such security that such legend is unnecessary.

Section 5.  Payment of Taxes. The Company will pay any documentary stamp taxes attributable to the initial issuance of Warrant Shares issuable upon the exercise of the Warrant; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates for Warrant Shares in a name other than that of the registered holder of this Warrant in respect of which such shares are issued. The holder shall be responsible for income taxes due under federal or state law, if any such tax is due.

Section 6.  Mutilated or Missing Warrants. In case this Warrant shall be mutilated, lost, stolen, or destroyed, the Company shall issue in exchange and substitution of and upon cancellation of the mutilated Warrant, or in lieu of and substitution for the Warrant lost, stolen or destroyed, a new Warrant of like tenor and for the purchase of a like number of Warrant Shares, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of the Warrant, and with respect to a lost, stolen or destroyed Warrant, reasonable indemnity or bond with respect thereto, if reasonably requested by the Company.

Section 7.  Reservation of Common Stock. The Company hereby represents and warrants that there have been reserved, and the Company shall at all applicable times keep reserved, out of the authorized and unissued Common Stock, a number of shares sufficient to

3

provide for the exercise of the rights of purchase represented by the Warrant in full. The Company agrees that all Warrant Shares issued upon exercise of the Warrant in accordance with its terms shall be, at the time of delivery of the certificates for such Warrant Shares, duly authorized, validly issued, fully paid and non-assessable shares of Common Stock of the Company.

Section 8.  Warrant Price. The Warrant Price, subject to adjustment as provided in Section 9, shall, if payment is made in cash or by certified check, be payable in lawful money of the United States of America.

Section 9.  Adjustment of Warrant Exercise Price and Number of Shares. The Warrant Price and the number of shares of Common Stock issuable upon exercise of this Warrant shall be adjusted from time to time as follows:

(a)If the Company or any of its subsidiaries shall at any time or from time to time while the Warrant is outstanding, pay a dividend or make a distribution on its capital stock in shares of Common Stock, subdivide its outstanding shares of Common Stock into a greater number of shares or combine its outstanding shares into a smaller number of shares or issue by reclassification of its outstanding shares of Common Stock any shares of its capital stock (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), then the number of Warrant Shares purchasable upon exercise of the Warrant and the Warrant Price in effect immediately prior to the date upon which such change shall become effective, shall be adjusted by the Company so that the Warrantholder thereafter exercising the Warrant shall be entitled to receive the number of shares of Common Stock or other capital stock which the Warrantholder would have received if the Warrant had been exercised immediately prior to such event. Such adjustment shall be made successively whenever any event listed above shall occur.

(b)If any capital reorganization, reclassification of the capital stock of the Company, consolidation or merger of the Company with another corporation, or sale, transfer or other disposition of all or substantially all of the Company’s assets to another corporation shall be effected, then, as a condition of such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition, lawful and adequate provision shall be made whereby each Warrantholder shall thereafter have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Warrant Shares immediately theretofore issuable upon exercise of the Warrant, such shares of stock, securities or assets as would have been issuable or payable with respect to or in exchange for a number of Warrant Shares equal to the number of Warrant Shares immediately theretofore issuable upon exercise of the Warrant, had such reorganization, reclassification, consolidation, merger, sale, transfer or other disposition not taken place, and in any such case appropriate provision shall be made with respect to the rights and interests of each Warrantholder to the end that the provisions hereof (including, without limitations, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock, securities or properties thereafter deliverable upon the exercise hereof.

4

(c)In the event that, as a result of an adjustment made pursuant to Section 9, the holder of this Warrant shall become entitled to receive any shares of capital stock of the Company other than shares of Common Stock, the number of such other shares so receivable upon exercise of this Warrant shall be subject thereafter to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in this Warrant.

(d)In the event of any adjustment pursuant to this Section 9 in the number of Warrant Shares issuable hereunder upon exercise, the Warrant Price shall be inversely proportionately increased or decreased, as the case may be, such that the aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same. Similarly, in the event of any adjustment in the Warrant Price pursuant to this Section 9 (but not for any other reason), the number of Warrant Shares issuable hereunder upon exercise shall be inversely proportionately increased or decreased, as the case may be, such that the aggregate purchase price for Warrant Shares upon full exercise of this Warrant shall remain the same.

Section 10.  Fractional Interest. The Company shall not be required to issue fractions of Warrant Shares upon the exercise of the Warrant. If any fraction of a Warrant Share would, except for the provisions of this Section, be issuable upon the exercise of the Warrant (or specified portions thereof), the Company shall round such calculation to the nearest whole number and disregard the fraction.

Section 11.  Benefits. Nothing in this Warrant shall be construed to give any person, firm or corporation (other than the Company and the Warrantholder) any legal or equitable right, remedy or claim, it being agreed that this Warrant shall be for the sole and exclusive benefit of the Company and the Warrantholder.

Section 12.  Notices to Warrantholder. Upon the happening of any event requiring an adjustment of the Warrant Price, the Company shall forthwith give written notice thereof to the Warrantholder at the address appearing in the records of the Company, stating the adjusted Warrant Price and the adjusted number of Warrant Shares resulting from such event and setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. In the event of a dispute with respect to any such calculation, the certificate of the Company’s independent certified public accountants shall be conclusive evidence of the correctness of any computation made, absent manifest error. Failure to give such notice to the Warrantholder or any defect therein shall not affect the legality or validity of the subject adjustment. At the Warrantholder’s request, the Company shall deliver to the Warrantholder as of a requested date a notice specifying the Warrant Price and the number of Warrant Shares into which this Warrant is exercisable as of such date.

Section 13.  Notices. Any notice pursuant hereto to be given or made by the Warrantholder to or on the Company shall be sufficiently given or made if delivered personally or by facsimile or if sent by an internationally recognized courier, addressed as follows:

5

VCampus Corporation

1850 Centennial Park Drive

Suite 200

Reston, VA  20191

Attention:  CFO

With a copy to:

Maupin Taylor, P.A.

3200 Beechleaf Court, Suite 500

Raleigh, North Carolina 27604

Attn:  Kevin A. Prakke, Esq.

or such other address as the Company may specify in writing by notice to the Warrantholder complying as to delivery with the terms of this Section 13.

Any notice pursuant hereto to be given or made by the Company to or on the Warrantholder shall be sufficiently given or made if personally delivered or if sent by an internationally recognized courier service by overnight or two-day service, to the address set forth on the books of the Company or, as to each of the Company and the Warrantholder, at such other address as shall be designated by such party by written notice to the other party complying as to delivery with the terms of this Section 13.

All such notices, requests, demands, directions and other communications shall, when sent by courier, be effective two (2) days after delivery to such courier as provided and addressed as aforesaid. All faxes shall be effective upon receipt.

Section 14.  Registration Rights. The initial holder of this Warrant is entitled to the benefit of certain registration rights in respect of the Warrant Shares as provided in the Registration Rights Agreement.

Section 15.  Successors. All the covenants and provisions hereof by or for the benefit of the Warrantholder shall bind and inure to the benefit of its respective successors and assigns hereunder.

Section 16.  Governing Law. This Warrant shall be deemed to be a contract made under the laws of the State of Delaware, without giving effect to its conflict of law principles, and for all purposes shall be construed in accordance with the laws of said State.

Section 17.  Assignment, etc. The Warrantholder may assign or transfer this Warrant to any transferee only with the prior written consent of the Company. This Warrant shall be binding upon the Company and its successors and shall inure to the benefit of the Warrantholder and its successors and permitted assigns.

Section 18.  Definitions. The following words and terms as used in this Warrant shall have the following meanings:

6

(i)“Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in the City of New York are authorized or required by law to remain closed.

(ii)“Closing Sale Price” means, for any security as of any date, the last closing sale price for such security on the Principal Market as reported by Nasdaq, or if the Principal Market begins to operate on an extended hours basis, and does not designate the closing trade price, then the last trade price at 4:00 p.m., New York City Time, as reported by Nasdaq, or if the foregoing do not apply, the last closing trade price of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Nasdaq (or by Bloomberg if Nasdaq does not report such prices), or, if no last closing trade price is reported for such security by Nasdaq, the last closing ask price of such security as reported by Nasdaq, or, if no last closing ask price is reported for such security by Nasdaq, the average of the highest bid price and the lowest ask price of any market makers for such security as reported in the “pink sheets” by the Pink Sheets LLC. If the Closing Sale Price cannot be calculated for such security on such date on any of the foregoing bases, the Closing Sale Price of such security on such date shall be the fair market value as determined in good faith by the Company’s Board of Directors.

(iii)“Issuance Date” means the date on which this Warrant is issued to the Warrantholder as is set forth on the first page of the Warrant.

(iv)“Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization and a government or any department or agency thereof.

(v)“Principal Market” means the principal securities exchange or trading market on which the Common Stock is traded.

(vi)“Securities Act” means the Securities Act of 1933, as amended.

[signature page follows]

7

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed as of the date first written above.

	VCAMPUS CORPORATION
	By:
	Name:	Narasimhan P. Kannan
	Title:	Chief Executive Officer
Attest:
Sign:
Print Name: Christopher L. Nelson

8

VCAMPUS CORPORATION
WARRANT EXERCISE FORM

VCampus Corporation

1850 Centennial Park Drive

Suite 200

Reston, VA  20191

Fax:  (703) 654-7319

Attention:  CFO

This undersigned hereby irrevocably elects to exercise the right of purchase represented by the within Warrant (“Warrant”) for, and to purchase thereunder                             shares of Common Stock (“Warrant Shares”) provided for therein, and requests that certificates for the Warrant Shares be issued as follows:

Name

Address

and, if the number of Warrant Shares shall not be all the Warrant Shares purchasable upon exercise of the Warrant, that a new Warrant for the balance of the Warrant Shares be issued under the same instructions.

o  (Check box, if applicable)  In lieu of delivering physical certificates representing the Warrant Shares purchasable upon exercise of this Warrant, provided the Company’s transfer agent is participating in the Depository Trust Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program and a registration statement covering the resale of the Warrant Shares is then effective or an exemption from registration is available in the opinion of Company counsel, upon request of the Holder, the Company shall use its best efforts to cause its transfer agent to electronically transmit the Warrant Shares issuable upon conversion or exercise to the undersigned, by crediting the account of the undersigned’s prime broker with DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.

Dated:	Signature:
	Name (please print)
	Address

EX-10.114

Exhibit 10.114

VCampus Proposal to Amer Technology Inc. for

Department of Veterans Affairs

VA Learning University

Web-based Training Initiative

VA Learning Online (VALO)

Request for Task Order SOW Modification

Contract Number

TPD-04-C-0013

FedSource Task Order

SAN008387

One (1) Year Contract with Three (3) Renewal Options

March 11, 2006— November 9, 2009

Date: March 7, 2006

VCampus proposes as per Attachment I for the one year with three renewal options for the continued support of VALO
on-line training:

Period of Performance

Base Year	3/11/2006 - 3/10/2007
Option Period One	3/11/2007 - 3/10/2008
Option Period Two	3/11/2008 - 3/10/2009
Option Period Three	3/11/2009 - 11/9/2009

Pricing

This Task Order is submitted as a Firm Fixed Priced proposal. See Attachment I for details.

Payment terms are as follows:

Amer Technology, Inc. will pay to VCampus the full firm fixed price amount for the base year of $1,481,480.17 within four (4) days of Amer Technology receiving payment from the Government.

Pricing Validity

All prices, terms and conditions quoted herein are valid for thirty (30) days from the date of this proposal.

FedSourceTask Order	ATTACHMENT I	Period of Performance:
		Marsh 11, 2005-November 9, 2009
SAN08387

Period of Performance 3/11/2006 – 3/10/2007
ITEM #	DESCRIPTION	QUANTITY	UNIT PRICE		EXTENDED PRICE
2VCM00I	Basic LMS Set-Up (225,000)	[*]	$	[*]	$	[*]
2VCM002	End User licenses (25,000-49,999)	[*]	[*]		[*]
N/A	Library Licenses (30,000)	[*]	[*]		[*]
5VCM00I	Project Manager	[*]	[*]		[*]
5VCM002	Senior Analyst	[*]	[*]		[*]
5VCM003	Senior Designer - Lead Instructional Designer	[*]	[*]		[*]
5VCM004	Journeyman Analyst - Instructional Designer	[*]	[*]		[*]
5VCM00S	Junior Analyst	[*]	[*]		[*]
5VCM006	Programmer	[*]	[*]		[*]
5VCM007	Instructor - SME	[*]	[*]		[*]
5VCM008	Graphics Artist	[*]	[*]		[*]
5VCM009	Technical Editor	[*]	[*]		[*]
TOTAL					$	1,481,480.17

Period of Performance: 3/11/2007-3/10/2008
ITEMS	DESCRIPTION	QUANTITY	UNIT PRICE		EXTENDED PRICE
2VCM00I	Basic LMS Set-Up (225,000)	[*]	$	[*]	$	[*]
2VCM002	End User Licenses (25,000-49,999)	[*]	[*]		[*]
N/A	Library licenses (30,000)	[*]	[*]		[*]
5VCM00I	Project Manager	[*]	[*]		[*]
5VCM002	Senior Analyst	[*]	[*]		[*]
5VCM003	Senior Designer - Lead Instructional Designer	[*]	[*]		[*]
5VCM004	Journeyman Analyst - Instructional Designer	[*]	[*]		[*]
5VCM00S	Junior Analyst	[*]	[*]		[*]
5VCM006	Programmer	[*]	[*]		[*]
5VCM007	Instructor - SME	[*]	[*]		[*]
5VCM008	Graphics Artist	[*]	[*]		[*]
5VCM009	Technical Editor	[*]	[*]		[*]
TOTAL					$	1,510,694.33

Period of Performance: 3/11/2008 -3/10/2009
ITEMS	DESCRIPTION	QUANTITY	UNIT PRICE		EXTENDED PRICE
2VCM00I	Basic LMS Set-Up (225,000)	[*]	$	[*]	$	[*]
2VCM002	End User Licenses (25,000-49,999)	[*]	[*]		[*]
N/A	Library Licenses (30,000)	[*]	[*]		[*]
5VCM00I	Project Manager	[*]	[*]		[*]
5VCM002	Senior Analyst	[*]	[*]		[*]
5VCM003	Senior Designer- Lead Instructional Designer	[*]	[*]		[*]
5VCM004	Journeyman .Analyst - Instructional Designer	[*]	[*]		[*]
5VCM00S	Junior Analyst	[*]	[*]		[*]
5VCM006	Programmer	[*]	[*]		[*]
5VCM007	Instructor - SME	[*]	[*]		[*]
5VCM008	Graphics Artist	[*]	[*]		[*]
5VCM009	Technical Editor	[*]	[*]		[*]
TOTAL					$	1,540,770.09

Period of Performance: 3/11/2009 - 11/9/2009
ITEMS	DESCRIPTION	QUANTITY	UNIT PRICE		EXTENDED PRICE
2VCM00I	Basic LMS Set-Up (225,000)	[*]	$	[*]	$	[*]
2VCM002	End User Licenses (25,000-49,999)	[*]	[*]		[*]
N/A	Library Licenses (30,000)	[*]	[*]		[*]
5VCM00I	Project Manager	[*]	[*]		[*]
5VCM002	Senior Analyst	[*]	[*]		[*]
5VCM003	Senior Designer - Lead Instructional Designer	[*]	[*]		[*]
5VCM004	Journeyman Analyst - Instructional Designer	[*]	[*]		[*]
5VCM00S	Junior Analyst	[*]	[*]		[*]
5VCM006	Programmer	[*]	[*]		[*]
5VCM007	Instructor - SME	[*]	[*]		[*]
5VCM008	Graphics Artist	[*]	[*]		[*]
5VCM009	Technical Editor	[*]	[*]		[*]
TOTAL					$	1,047,881.97
TOTAL TASK ORDER VALUE					$	5,580,826.56

[*]  Confidential Treatment Requested for Portions of this Agreement

Amer Technology, Inc.

Task Order Modification Award Notice

To V-Campus

Modification Award Date 3/13/06

Task Order Award Notice
Contract Number TPD-04-C-0013
Customer POC Information
Department of Veterans Affairs
810 Vermont Ave. N. W.
Washington, DC 20420
US
Attn: Seldon Todd
Phone: (202) 501-3442
Fax: (202) 501-3462
E-mail address: Earliest Start Date: 3/11/06
Task Order Number: SAN008387-Mod 002
FedSource RFP: Q007041-SAN
Site Location
Department of Veterans Affairs
810 Vermont Ave. N. W.
Washington, DC 20420
US
Attn: Seldon Todd
Phone:(202) 501-3442
Fax: (202) 501-3462

FASTRAC Modification 002:
Award Period: 3/11/06 - 3/10/07	Project Title: VALO SUPPORT - Renewal Year

Item	Description	Qty	Rate	Total
2VCM001	Basic LMS Set-Up (225,000)	[*]
2VCM002	End User Licenses (25,000-49,999)	[*]	[*]	[*]
N/A	Library Licenses (30,000)	[*]	[*]	[*]
5VCM001	Project Manager	[*]	[*]	[*]
5VCM002	Senior Analyst	[*]	[*]	[*]
5VCM003	Senior Designer - Lead Instructional Designer	[*]	[*]	[*]
5VCM004	Journeyman Analyst -Instructional Designer	[*]	[*]	[*]
5VCM005	JuniorAnalyst	[*]	[*]	[*]
5VCM006	Programmer	[*]	[*]	[*]
5VCM007	Instructor - SME	[*]	[*]	[*]
5VCM008	Graphics Artist	[*]	[*]	[*]
5VCM009	Technical Editor	[*]	[*]	[*]
Total				$	1,481,480.17

Designated billing items are no to be exceeded without Task Order Modification

[*]  Confidential Treatment Requested for Portions of this Agreement

Block 14 Continuation

This modification is to renew the use of the FasTrac program for the period of 3/11/2006 through 3/10/07. This effort will provide 30,000 employees access to SkillSoft Complete Combined Library, the Environmental Safety and Health and Legal Compliance Library and support to the Library Management System. The support consists of help desk support and the creation of customized ad hoc reports throughout the period of performance. The three line items were broken down into multiple labor categories, with percentages allocated to each of the services line items (help desk and reports). See PNM for details. This task order was awarded under the FasTrac program, which was completed and awarded to Amer Technology.

This Task Order Modification Award Notice is issued pursuant to the Subcontracting Agreement between Amer Technology, Inc. and Subcontractor

Jack Jensen

Vice-President, Instructional Systems

5717 Northwest Parkway, Suite 103

San Antonio, TX 78249

Tel (210) 256-7070 FAX (210) 256-7878

2

SUBCONTRACT AGREEMENT

EFFECTIVE DATE:	February 11, 2005
CONTRACT TYPE:	Time and Materials Labor Hours Firm Fixed Price Indefinite Delivery – Indefinite Quantity Task Order
CONTRACT VALUE:	Contract Price to be established by Task Orders issued hereunder
CONTRACTOR CONTACTS:	Contracts:	Jack Jensen, Vice President Instructional Systems Amer Technology, Inc
	Technical:	Jack Jensen, Vice President Instructional Systems Amer Technology, Inc.
	Contracts:	Ronald E. Freedman Sr. Vice President, Sales and Marketing VCampus Corporation
SUBCONTRACTOR CONTACTS:	Technical:	Joy Gilstrap Manager, Sales Support VCampus Corporation

APPROVAL SIGNATURES:
VCampus Corporation	Amer Technology, Inc.
/s/ Christopher L. Nelson
Signature	Signature
Christopher L. Nelson, Chief Financial Officer
Name and Title	Name & Title
3/1/05
Date	Date

1

TABLE OF CONTENTS

DESCRIPTION	PAGE
SUBCONTRACT COVER PAGE	1
TABLE OF CONTENTS	2
SECTION B. SERVICES	3
SECTION C. DESCRIPTION	5
SECTION D. PACKAGING AND MARKING	5
SECTION E. INSPECTION AND ACCEPTANCE	5
SECTION F. DELIVERIES OR PERFORMANCE	6
SECTION G. CONTRACT ADMINISTRATION DATA	7
SECTION H. SPECIAL CONTRACT REQUIREMENTS	12
SECTION I. CONTRACT CLAUSES	18

2

SECTION B -  SERVICES

B.1SCOPE OF WORK

(a)   The Subcontractor shall furnish the necessary services (“Services”) of skilled professional, technical personnel or firm fixed price deliverables (“Deliverables”)_to fulfill the requirements of the Task Orders (TO) in support of the prime Statement of Work entitled “TBD”. The personnel supporting this effort must meet the requirements of the attached Labor Category Descriptions.

(b)  Deliverables will be in accordance with the Task Orders dated TBD. In the event any software licenses are specified as a Deliverable in a TO, each software license will be subject to the software developer’s applicable license terms and conditions. In the case of Subcontractor’s proprietary software, the terms and conditions governing such software are contained in Subcontractor’s GSA Schedule GS-35F-0069M, which is hereby incorporated by this reference. In no instance will a software license be deemed a Service for the purposes of this Agreement or any terms or conditions incorporated herein.

B.2.         LABOR HOURS (T&M)

The labor hours will be specified in each Task Order (TO). Each person will be assigned a labor category. Only those categories specifically approved for a TO may be charged. The Prime Program Manager must approve every person charging to a TO in advance, in writing. The selection of individuals to support this program was based on the personnel having the critical skills necessary to provide continuity of services for the FasTrac requirements. No substitution or replacement of personnel will be permitted without written consent from the Prime Contractor, which shall not be unreasonably withheld.

(a)   Individuals or groups of individuals assigned under this contract will not divulge or communicate in any way anything that is considered to be proprietary, financial, confidential and/or privileged information by Prime Contractor (i.e. wages, hours, manning, progress) to third parties to include government representatives without the express written consent of Prime Program Manager.

(b)  The parties anticipate that under this Agreement it may be necessary for either party to transfer to the other information of a proprietary nature. Proprietary information shall be clearly identified by the disclosing party at the time of disclosure by (i) appropriate stamp or markings on the document exchanged; or (ii) written notice, with attached listings of all material, copies of all documents, and complete summaries of all oral disclosures (under prior assertion of the proprietary nature of the same) to which each notice relates, delivered within two (2) weeks of the disclosure to the other party.

(c)   Each of the parties agrees that it will use the same reasonable efforts to protect such information as are used to protect its own proprietary information. Disclosures of such information shall be restricted to those individuals who are directly participating in the proposal, contract and subcontract efforts identified in Articles 1, 2, 3, and 4 hereof.

(d)  Neither party shall make any reproduction, disclosure, or use of such proprietary information except as follows:

3

(1)           Such information furnished by the Subcontractor may be used, reproduced and/or disclosed by Contractor in performing its obligations under this Agreement.

(2)           Such information furnished by Contractor may be used, reproduced and/or disclosed by the Subcontractor in performing its obligations under this Agreement.

(3)           Such information may be used, reproduced and/or disclosed for other purposes only in accordance with prior written authorization received from the disclosing party.

(e)   The limitations on reproduction, disclosure, or use of proprietary information shall not apply to, and neither party shall be liable for reproduction, disclosure, or use of proprietary information with respect to which any of the following conditions exist:

(1)           If, prior to the receipt thereof under this Agreement, it has been developed or learned independently by the party receiving it, or has been lawfully received from other sources, including the Government, provided such other source did not receive it due to a breach of this Agreement or any other agreement.

(2)           If, subsequent to the receipt thereof under this Agreement, (i) it is published by the party furnishing it or is disclosed, by the party furnishing it to others, including the Government, without restriction; or (ii) it has been lawfully obtained, by the party receiving it, from other sources including the Government, provided such other source did not receive it due to a breach of this or any other agreement; or (iii) such information otherwise comes within the public knowledge or becomes generally known to the public.

(3)           If any part of the proprietary information has been or hereafter shall be disclosed in a United States patent issued to the party furnishing the proprietary information hereunder, the limitations on such proprietary information as is disclosed in the patent shall be only that afforded by the United States Patent Laws after the issuance of said patent.

(4)           If any part of the proprietary information is required by law to be disclosed. In the event that information is required to be disclosed pursuant to subsection 4, the party required to make disclosure shall notify the other to allow that party to assert whatever exclusions or exemptions may be available to it under such law or regulation.

(f)   Neither the execution and delivery of this Agreement, nor the furnishing of any proprietary information by either party shall be construed as granting to the other party either expressly, by implication, estoppel, or otherwise, any license under any invention or patent now or hereafter owned or controlled by the party furnishing the same.

(g)  This contract supersedes all written, express, verbal and nonverbal correspondence that may or may not have been communicated in the past.

(h)  Effort expended in fulfilling each TO shall only include effort in direct support of any resultant contract and shall not include effort expended on such things as local travel to and from an employee’s usual work location, uncompensated effort while on travel status, truncated lunch periods, un-approved work (actual or inferred) at the employee’s residence or other non-work locations, or other effort which does not have a specific and direct contribution to tasks described herein.

B.3          POINTS OF CONTACT

All communication shall be between Subcontractor and Prime Contractor. The subcontractor is not authorized to send any correspondence directly to the Government Contracting Officer unless communication is initiated by the Government Contracting Officer.

4

PRIME CONTRACTOR:

Amer Technology, Inc.

Attn: Balwinder Dhillon

6502 Bandera Rd, Suite 105

San Antonio, TX 78238

SUBCONTRACTOR:

VCampus Corporation

Attn: Joy Gilstrap

1850 Centennial Park Drive, Suite 200

Reston, VA 20191

SECTION C - -  DESCRIPTION

C.1          DESCRIPTION

The Services and Deliverables set forth in Section B shall comply with the following documents:

a.Task Order (TO)

b.FasTrac Scope of Work/Performance Work Statement

c.Prime Contract

d.Contract Security Classification Specification (DD254), if applicable

e.Contract Data Requirements List, if applicable

SECTION D -  PACKAGING AND MARKING

D.1PAYMENT OF POSTAGE AND FEES

The Subcontractor shall pay all postage and fees related to submitting information and materials to the Government unless mutually agreeable alternate arrangements are made between the Prime Contractor and the Subcontractor.

D.2PREPARATION FOR DELIVERY

All items shall be packaged in accordance with normal commercial practice.

D.3MARKING OF SHIPMENTS

To facilitate identification, the Subcontractor making shipments to the Prime Contractor or to the Government shall mark each piece, bundle, or container (inside and outside) with the Government contract number, the task order number, and, in addition, mark all shipments in accordance with normal commercial practice.

5

SECTION E -  INSPECTION AND ACCEPTANCE

E.1REFERENCED CLAUSES

The following contract clause pertinent to this section is hereby incorporated by reference:

FAR 52.246-4	INSPECTION OF SERVICES–FIXED-PRICE (AUG 1996)
FAR 52.246-6	INSPECTION - TIME-AND-MATERIAL AND LABOR-HOUR
	(MAY 2001)

E.2NOTICE: MATERIAL AND WORKMANSHIP

All material incorporated in the work shall be new and the work shall be performed in a skillful and workmanlike efficient manner. Both materials and workmanship shall be subject to the inspection of the Prime Program Manager or their duly authorized representative who may require the Subcontractor to correct defective workmanship or materials.

E.3INSPECTION AND ACCEPTANCE AT DESTINATION

The Government or the Prime Program Manager will perform inspection and acceptance at destination. QA performance standards will be specified for each task order and be dependent upon the complexity of the task to be performed.

The Prime Contractor will provide written notice to the Subcontractor of deficiencies or necessary corrections to Deliverables within 30 calendar days of receipt of such deliverable. This notice will state the action the Prime Contractor requires of the Subcontractor in accordance with provisions of 52.246-20, Warranty of Services.

E.4ACCEPTANCE REVIEW AND QUALITY

The Prime Contractor will conduct a review of the contract Deliverables for completeness, correctness, and compliance with SOW requirements.

E.5QUALITY CONTROL

The Subcontractor is required tomaintain a system of quality control commensurate with the task order requirements. At a minimum, historical and in process workloads segregated by task order and general task category is required. . The performance standards for each task order will be specified in the task order request. The Subcontractor is required to immediately notify the Prime Contractor of problems or situations that could negatively impact compliance with the provisions of the contract, and to inform the Prime Contractor of the plan the Subcontractor will implement to resolve problems.

SECTION F -  DELIVERIES OR PERFORMANCE

F.1REFERENCED CLAUSES

FAR 52.242-15	Stop-Work Order (AUG 1989)
FAR 52.247-34	F.O.B. Destination (NOV 1991)

6

F.2PERIOD OF PERFORMANCE

This agreement shall be in place: Base Year 2/11/05 - -  2/10/06

Should the Government exercise options, this agreement will extend for the following periods:

Option Year 1       2/11/06 - -  2/10/07

Option Year 2       2/11/07 - -  2/10/08

Option Year 3       2/11/08 - -  11/9/08

F.3PLACE OF PERFORMANCE

The place of performance shall be specified in each task order.

SECTION G - - CONTRACT ADMINISTRATION DATA

G.1ACCOUNTING AND APPROPRIATION DATA

Accounting and appropriation data will be provided in each TO.

G.2FACILITIES/COMPUTER COSTS

The Subcontractor shall not direct charge for facilities cost and computer cost. In the event that travel or material costs are required to support an effort, it will be identified in the TO. Any ODC must be part of the TO.

G.3NOTICE OF TAXATION

The Subcontractor shall provide the Prime Contractor with written notice of any proposed tax assessments, exemptions, exclusions or refunds, which would increase or decrease costs or liabilities to the subcontractor and/or Prime Contractor. The notice shall be submitted to Prime Contractor in sufficient time to provide the Government a meaningful opportunity to assert its immunity, participate in negotiations or litigation with the taxing authority concerning the applicability of the tax, and/or adjust the parties’ liability for costs according to the increase or decrease in tax.

G.4SUBCONTRACTOR LIABILITY FOR STATE AND LOCAL TAXES

Generally, the Subcontractor is liable for payment of state or local taxes on this subcontract to the same extent that it would be liable for such taxes on a contract with a non-government entity. Although it may be useful for the Subcontractor to inform the taxing authorities that Prime Contractor’s customer, FedSource San Antonio, is a federal government agency, this fact alone does not in and of itself create a tax exemption for the subcontractor. While some transactions undertaken by the Subcontractor pursuant to this subcontract may be exempt from a state or local tax, it is the Subcontractor’s responsibility to identify such exemption under the applicable statute, and to resolve the applicability of such with state or local taxing authorities.

G.5TASK PROPOSAL REQUEST

a.     The following types of task orders may be issued:

1.Fixed-Price: This is a task for which there are reasonably definite requirements, and for which there is one or more tangible Deliverables.

2.Time-and-Materials: This is a task that addresses a requirement where it is not

7

possible to define the work specifically enough to permit the development of a firm price estimate. The end product may be either services to perform specified types of work or the production of piecework, such as training manuals. This type of task order will be issued with a not-to-exceed ceiling price.

3.Labor-Hours: This is a task that addresses a requirement where it is not possible to define the work specifically enough to permit the development of a firm price estimate. No materials are necessary in the performance of the work. This type of task order will be issued with a not-to-exceed ceiling price.

b. For time-and-materials task orders, the Prime Program Manager will negotiate a finalized proposal, delivery schedule, performance metrics and standards, specifications, and issue the task order. The Subcontractor may not exceed the monetary limitation outlined in the task order without prior approval of the Prime Program Manager.

c. In the event the task order calls for inclusion of ancillary costs such as equipment acquisition, computer time, software, or continuing travel (other than a single trip), the Subcontractor shall include these costs in the task proposal. If a task order will require delivery of any materials or supplies, the Government will include FAR provisions 52.225-2 and 52.225-4in the task proposal request, as necessary.

G.6TASK ORDER PROPOSAL

The task proposal request doesn’t commit the Prime Contractor to pay any costs incurred in the submission of any proposal, nor does it commit the Government to issue a task order for such services.

G.7TASK ORDER PROCESS

Time and Material RFP (Category 5)- Typically FedSource requires response within three business days. In order to meet the short turnaround:

•Qualify vendor(s) based upon factors such as:

i.Suggested source

ii.Technical expertise

iii.Past performance

iv.Location

v.Security Clearance

vi.Price

•Forward RFP to qualified vendor(s) within one business day.

•Mini-proposal due to Prime Program Manager within one business day.

•Evaluate proposal(s) on the factors such as:

i.Technical Approach/best industry practices

ii.Past performance

iii.Proposed personnel

iv.Price

v.Other factors included, but not limited to, estimated level of effort and

8

period of performance

•QA for AQL adherences in accordance with our QA plan

•Select the successful vendor

•Submit successful proposal to FedSource within three days after RFP release

•Conduct negotiations as needed

•If award is made, Prime Program Manager will notify winning contractor via email within one business day after award is received.

•Within one business day of receiving award, Subcontractor must respond via email, with the understanding to proceed.

Firm Fixed Price (Category 1 to 4): The following procedures shall be followed in initiating tasks under this Subcontract for pre-priced requirements.

•Chose the appropriate vendor, based on factors such as:

i.Suggested source

ii.Technical expertise

iii.Past performance

iv.Location

v.Security Clearance

vi.Price

•Complete quote with particular focus on quantity

•Return to FedSource within 24 hours of RFP release

•If award is made, Prime Program Manager will notify winning contractor via email within one business day after award is received.

•Within one business day of receiving award, Subcontractor must respond via email, with the understanding to proceed.

G.8INVOICING

The invoice, with appropriate backup documentation (i.e., time sheets), shall be submitted in an Excel, Access, or compatible format to the Prime Contractor via the Internet or in diskette form via FedEx at Subcontractor’s expense. Supporting documentation shall be sent electronically if possible. If the electronic invoice is sent via diskette, the diskette shall be sent to the following address:

Amer Technology

6502 Bandera Rd, Suite 105

San Antonio, TX 78238

The Subcontractor shall render monthly invoices, including backup documents, in arrears by the 5^th calendar day of the following month for Services and Deliverables received in the prior month (e.g., October 1—31 shall be billed by November 5th).

Prime Contractor shall submit an accurate invoice (reflecting all Services and Deliverables timely invoiced by Subcontractor) to the Government by the 12^th of each month (as specified in performance work statement).

9

A “late” invoice is defined as a valid invoice that the Contractor submits after the 5^th day of the month, or the next business day if the 5^th calendar day is on a weekend or holiday, for the previous monthly period of service. “Late” subcontractor invoices will be included in the following month’s invoice to the government (e.g. an invoice received from the subcontractor on 6 November for services provided October 1-31 will be included in the prime contractor’s invoice to the government submitted by the 12^th of December).

a. Labor-Hour Task Order -  Detailed costs shall be provided in the following:

i.For labor hours, labor expended for each skill level. The amount invoiced shall include labor charges for actual hours worked and other actual expenses based upon contract rates. Copies of timesheets shall be included.

ii.Total labor charges

iii.Total invoice amount

b. Time-and-Materials Task Order -  Detailed costs shall be provided in the following:

i.For time-and-materials tasks, labor expended for each skill level. The amount invoiced shall include labor charges for actual hours worked and other actual expenses based upon contract rates. Copies of timesheets shall be included.

ii.Total labor charges

iii.Travel and per diem charges

iv.Total other direct costs

v.Total invoice amount

NOTE: For reimbursable charges such as equipment, travel, per diem and other direct costs, invoices shall reflect the Subcontractor’s actual expense for the item. Receipts must accompany invoices for reimbursable charges. Receipts for travel and per diem will be submitted as required by the Federal Travel Regulations.

c. Fixed-Price Task Order -  Payment requests will be based on the payment schedule shown in the task order.

The Subcontractor agrees to include the following information on each invoice, as well as the information detailed above on labor-hour and time-and-materials task orders:

i.Name and address of the Subcontractor

ii.Invoice date and number

iii.Subcontract number and number for each Task Order (identifying the agency customer)

a.Period of performance

iv.Description, quantity, unit of measure, unit price, and extended price of supplies delivered or services performed

v.Shipping and payment terms

10

vi.Name and address of Subcontractor official to whom payment is to be sent (must be the same as that in the contract or in a proper notice of assignment)

vii.Name (where practicable), title, phone number, and mailing address of person to be notified in the event of a defective invoice

viii.Other substantiating documentation or information as required by the Subcontract (for example, time cards for labor-hours or time-and-material task orders)

All invoices shall be sent to the Prime Contractor with separate pages identified for each customer agency with its agency code and task order number and appropriate charges. All billing issues shall be handled and resolved between the Subcontractor and the Prime Contractor’s representative. The Subcontractor shall direct all questions and will use its reasonable best efforts to resolve all issues concerning invoices with the Prime Contractor and not the Government. Subcontractor shall not engage in any billing discussion with a customer agency unless: a) the customer agency initiates the discussion, b) Prime Contractor has authorized the discussion, or c) Prime Contractor has breached a provision of this Agreement.

Each TO may have additional invoicing instructions.

Questions regarding payment shall be directed to (TBD).

Payment to Subcontractor will be made within four working days after Prime Contractor receives payment from FedSource.

G.9PAYMENT

1.Payment of invoices will be made based on the following:

a.Negotiated monthly payment schedule

b.Level of effort

c.Fixed-price in accordance with the payment schedule for Deliverables in the individual task order

2.If supplies or services are rejected for failure to conform to the technical requirements of the subcontract, or any other contractually legitimate reason, the Subcontractor will be paid an amount indicated by the payment calculation associated with the acceptable quality performance standards indicated in the task order or an amount negotiated by the Prime Contractor.

3.Reimbursement for travel expenses:

a.Subcontractor will be reimbursed for travel and per diem expenses as specifically authorized in a task order. Charges cannot exceed those stipulated in the Federal Travel Regulations unless documented by conditions listed in FAR 31.205-46, Travel Costs.

b.Limits on travel rates for food and lodging are determined in accordance with Federal Travel Regulations.

11

c.Labor hour payments will be made for actual authorized travel time in support of approved task orders using the same criteria as for Government personnel traveling under the same circumstances. The Subcontractor is responsible for ensuring that travel time outside of normal work hours is kept to a minimum. Upon request, the Subcontractor shall furnish schedules and mode of transportation to the Government.

G.10       PRICING OF ADJUSTMENTS

When costs are a factor in any determination of a contract price adjustment pursuant to FAR  52.243-1, Changes - Fixed Price, and 52.243-3, Changes – Time-and-Materials or Labor-Hours, such costs shall be in accordance with the contract cost principles and procedures in Part 31 of the Federal Acquisition Regulation (48 CFR 31) in effect on the date of the subcontract award.

G.11WITHHOLDING

In accordance with 52.232-7, Payments under Time-and-Materials and Labor-Hour Contracts, the Prime Contractor may withhold 5% of invoiced amounts for Subcontractor Services when directed to do so by FedSource. If the Prime Contractor intends to withhold, it will indicate its intent in the task order. In the event withholding is done, funds will be withheld pending approval of the Services by the Government. Withheld funds will be promptly returned to Subcontractor upon approval by the Government, along with any interest on the withheld amounts that have accrued and are paid by the Government. If the Government intends to not release withheld amounts, the Subcontractor will be promptly notified.

G.13REPORTING

Quarterly status reports shall be processed and forwarded to the Prime Contractor via email NLT the 8^th day of each new quarter. Input shall include at a minimum new offerings/product initiatives, planned changes to existing offerings, new issues, and plans for resolving issues.

SECTION H - -  SPECIAL CONTRACT REQUIREMENTS

H.1PUBLIC RELEASE OF INFORMATION PERTAINING TO THIS CONTRACT

Any proposed release of information pertaining to this contract or the work called for hereunder shall be submitted to the Prime Contractor for approval prior to release. No information shall be released without written approval from the Prime Contractor.

H.2PRIME CONTRACTOR AND GOVERNMENT CLOSURES

(a) Those persons working on Prime Contractor premises shall observe Prime Contractor holidays. Those persons working on government premises shall observe government holidays.

(1) Holidays

Prime Contractor Holidays:

New Year’s Day -  1 January

President’s Day – 3^rd Monday in February

12

Memorial Day -  Last Monday in May

Independence Day -  4 July

Labor Day – 1^st Monday in September

Thanksgiving Day – 4^th Thursday in November

Day after Thanksgiving

Christmas Day – 25 December

Post Christmas Day - 26 December

Government Holidays:

New Year’s Day - 1 January

Martin Luther King, Jr.’s Birthday – 3^rd Monday in January

President’s Day – 3^rd Monday in February

Memorial Day -  Last Monday in May

Independence Day -  4 July

Labor Day

Labor Day – 1^st Monday in September

Columbus Day – 2^nd Monday in October

Veteran’s Day -  11 November

Thanksgiving Day – 4^th Thursday in November

Christmas Day – 25 December

(2) Any other day designated by Federal Statute, Executive Order or a Presidential proclamation.

(3) When a holiday falls on a Sunday, the following Monday will be observed as a legal holiday.  When a holiday falls on a Saturday, the preceding Friday is observed as a holiday by U.S.  Government Agencies.

(4) Unless authorized by the Prime Program Manager, or his/her duly authorized representative, the Subcontractor shall not work UNDER THIS SUBCONTRACT at any Contractor facility on any contractor holiday listed above nor should any deliveries under this subcontract be made to any on site facility on those days. For those persons working at government facilities, no work will be done on government holidays listed above without specific written authorization.

(b) Administrative Leave:

(1) When the Government grants administrative leave to employees as a result of inclement weather, potentially hazardous conditions, or other special circumstances, subcontractor personnel working at the specific facility/location granted administrative leave shall also be dismissed. However, the subcontractor shall provide sufficient on-site personnel to perform the requirements of critical work, which will be defined as critical in Task Order.

(2) On-site personnel working on this subcontract shall not be granted access to Agency installations during closure situations unless they are designated as emergency or essential personnel required to the requirements of critical work, or are otherwise instructed by the Prime Program Manager or duly authorized representative. On-site personnel at another government facility shall only be granted access under terms agreed to with that Agency.

13

H.4INSURANCE

(a) In accordance with FAR 28.307-2 the subcontractor shall at his own expense, procure and maintain during the entire performance period of this subcontract insurance of at least the kinds and minimum amounts set forth below:

Worker’s Compensation and Employer’s Liability Insurance	$	100,000
General Liability Insurance:
For Bodily Injury Liability Minimum Per Occurrence	$	500,000
Automobile Liability Insurance:
Minimum Per Person	$	200,000
Minimum Per Occurrence for Bodily Injury	$	500,000
Minimum Per Occurrence for Property Damage	$	20,000

(b) Prior to the commencement of work hereunder, the Subcontractor shall furnish to the Prime Program Manager Representative, a written statement of the above required insurance. The policies evidencing required insurance shall contain an endorsement to the effect that cancellation or any material change in the policies adversely affecting the interest of Prime Contractor in such insurance shall not be effective for such period as may be prescribed by the laws of the state in which this subcontract is to be performed and in no event less than thirty (30) days after written notice thereof to the Prime Program Manager.

(c) The Subcontractor shall insert the substance of FAR 52.228-7 clause, including this paragraph (c), in all first tier subcontracts hereunder.

H.5MEETINGS AND CONFERENCES

Technical meetings and/or conferences may be necessary to resolve problems and to facilitate understanding of the technical requirements of the TO. Participants at these meetings and conferences shall be members of the Subcontractor’s technical staff and technical representatives of the Government. When attendance at such meetings/conferences is authorized by the task order, all costs shall be billed on a time and materials basis. When reimbursement is not authorized by the task order, all costs associated with the attendance at these meetings and conferences shall be incidental to the contract and not separately billed.

H.6RULES AND REGULATIONS ON A GOVERNMENT FACILITY

While on the premises of the customer agency, regulations include presenting valid identification for building entrance and obeying all the rules and regulations provided by the agency. If work is to be performed in a restricted area, Subcontractor personnel shall be escorted at all times. Subcontractors shall comply with the safety rules of the Government installation that concern related activities not directly addressed in this contract. The Subcontractor shall take all reasonable steps and precautions to prevent accidents and preserve the life and health of Subcontractor and Government personnel.

14

H.7NON-PAYMENT FOR ADDITIONAL WORK

Any additional services or change to work not specified in each TO may be performed by the Subcontractor at the financial risk of the Subcontractor.

H.8PERSONAL SERVICES

(a) Prime Contractor and the Subcontractor understand and agree that the services to be delivered under this subcontract by the Subcontractor to Prime Contractor are non-personal services and the parties recognize and agree that no employer-employee relationship exist or will exist under the subcontract between Prime Contractor and the Subcontractor’s employees. It is therefore, in the best interest of Prime Contractor to afford both parties a full understanding of their respective obligations.

(b) Subcontractor personnel under this subcontract shall not:

(1) Be placed in a position where they are under the supervision, direction, or evaluation of a Prime Contractor employee.

(2) Be placed in a position of command, supervision, administration or control over Prime Contractor or Government personnel.

(3) Be used for the purpose of avoiding manpower ceilings or other personnel rules and regulations.

(4) Be used in administration or supervision of Government procurement activities.

(c) Employee Relationship: The services to be performed under this subcontract do not require the Subcontractor or his/her personal judgment and discretion on behalf of the Prime Contractor or the Government. Rather the Subcontractor’s personnel will act and exercise personal judgment and discretion on behalf of the Subcontractor.

(d) Inapplicability of Employee Benefits: This subcontract does not create an employer-employee relationship. Accordingly, entitlements and benefits applicable to such relationships do not apply. The entire consideration and benefits to the Subcontractor for performance of this subcontract are contained in the provisions for payment under this subcontract.

(e) Subcontractor employees shall be clearly identifiable while on Prime Contractor or Government property.

(f) Notice. It is the Subcontractor’s, as well as Prime Contractor’s responsibility to monitor subcontract activities and notify the Prime Program Manager if the Subcontractor believes that the intent of this clause has been or may be violated. The following procedures will be used:

(1) The Subcontractor shall notify the Prime Program Manager in writing promptly, within 10 calendar days from the date of any incident that the Subcontractor considers to constitute a violation of this clause. The notice shall include the date, nature, and circumstance of the conduct, the name, function, and activity of each government, subcontractor, prime official or employee, or Subcontractor official or employee involved or knowledgeable about such conduct, identify any documents or substance of any oral communication involved in the contact, and the

15

estimate in time by which Prime Contractor shall respond to this notice to minimize cost, delay or disruption of performance.

(2) The Prime Program Manager shall promptly, within 10 calendar days after receipt of notice, respond to the notice in writing. In responding, the Prime Program Manager shall either:

(i) Confirm that the conduct is in violation and when necessary direct the mode of further performance;

(ii) Counter any communication regarded as a violation;

(iii) Deny that the conduct constitutes a violation and when necessary direct the mode of further performance; or

(iv) In the event the notice is inadequate to make a decision, advise the Subcontractor what additional information is required, and establish the date by which it should be furnished by the Subcontractor and the date thereafter by which the Prime Contractor will respond.

(v) This notice does not constitute a claim and resolution will not result in any increase to the price/cost of this contract.

(g) The Subcontractor shall ensure that all of their personnel working in Prime Contractor or Government facilities are knowledgeable of the content of this policy.

H.9LABOR RATES AND CATEGORIES

The Subcontractor may NOT charge a category unless specifically authorized by the Prime Program Manager. The labor rates are fixed rates per labor category specified in the task order.  Each individual must meet, at a minimum, the requirements of the labor category qualifications for which they are charging against. Any personnel change must be reported in writing to the Prime before the next invoice cycle.

H.10ORDER OF PRECEDENCE

Any inconsistency in this contractual document (inclusive of documents, provisions or exhibits referenced herein or attached hereto) shall be resolved by giving precedence in the following order:

(1)Subcontract Document (excluding the Statement of Work and CDRLs)

(2)Task Order(TO)

(3)FasTrac Statement of Work

(4)Prime Contract Statement of Work and CDRLS

H.11SOLICITING EMPLOYEES

Neither Prime Contractor nor the Subcontractor shall solicit for hire any employee of each other nor of the other Subcontractors working on the FasTrac Program without the written consent of the employee’s employer. This clause, however, shall not restrict in any way the right of Prime Contractor or the Subcontractor to solicit generally in the media for required personnel. Furthermore, this clause does not restrict employees of Prime Contractor or Subcontractor from pursuing on their own initiative employment opportunities with the other party. However, this paragraph shall not apply when an employee of the subcontractor approaches Prime Contractor for a position (unsolicited by Prime Contractor while the individual is employed by the

16

Subcontractor) and employment of that individual by Prime Contractor on the FasTrac program would be in the best interests of the Government or the FASTRAC program.

H. 12INDEMNIFICATION

In the event Subcontractor, its employees, agents, or lower-tier subcontractors enter premises occupied by or under the control of Prime Contractor in the performance of this agreement, Subcontractor shall indemnify and hold harmless Prime Contractor, its officers and employees from any settlement amount or final judgment award by reasons of property damage or personal injury of whatsoever nature or kind arising out of, as a result of, or in connection with such performance occasioned in whole or in part by the actions or omissions of the Subcontractor, its employees, agents, or lower-tier subcontractors. Without any way limiting the foregoing undertakings, Subcontractor and its lower-tier subcontractors shall maintain liability and property damage insurance in reasonable limits covering the obligations set forth above and shall maintain proper Worker’s Compensation insurance covering all employees performing this Agreement. In the event Subcontractor, its employees, agents, or lower-tier subcontractors enter premises occupied by or under the control of Prime Contractor in the performance of this agreement, Prime Contractor shall indemnify and hold harmless Subcontractor, its officers and employees from any loss, cost, damage, expense, or liability by reasons of property damage or personal injury of whatsoever nature or kind arising out of, as a result of, or in connection with such performance occasioned in whole or in part by the actions or omissions of the Prime Contractor, its employees, agents, or lower-tier subcontractors (other than Subcontractor).

H.13PHASE-OUT OF CONTRACT AND CONTINUITY OF SERVICES

The Subcontractor must recognize that services under this contract must continue without interruption and that upon contract expiration, a successor, either the Government or another contractor, may continue services. The Subcontractor agrees to exercise its best effort and cooperate effectively in an orderly and efficient transition to any successor contractor in the event of contract expiration.

H.14GOVERNMENT FURNISHED FACILITIES, SUPPLIES AND SERVICES

The Subcontractor agrees to use all available Government working space, materials, services, and other support at, or available through, any Government activity where work under this contract will be performed, at no charge to the Subcontractor.

a.PHYSICAL SECURITY: The Subcontractor shall be responsible for safeguarding all Government property provided for Subcontractor use as well as for the Subcontractor’s property. At the close of each work period, government facilities, equipment, and materials shall be secured.

b.EQUIPMENT: Contract personnel shall have joint use of all the equipment available for performing services required by this contract.

H.15ACQUISITION/LEASING OF INFORMATION PROCESSING RESOURCES

In the event the Subcontractor proposes to lease or acquire any Information Technology (IT) equipment or software for the performance of a task order under this contract, it must be precisely defined in the task order proposal or an amendment thereto. The acquisition/lease (including terms and conditions, particularly in regard to end-of-lease terms), the procurement

17

method, and the condition must be approved, in writing, by the Prime’s COTR prior to action by the Contractor. In addition, all IT equipment shall meet Section 508 of the Rehabilitation Act of 1973 (29 U.S.C. 794(d) accessibility requirements. Information on Section 508 may be obtained at www.section5O8.gov.

H.16IMPAIRED PERSONNEL

The Subcontractor is required to remove immediately any Subcontractor personnel whose actions or impaired state raises reasonable suspicion that clear and present danger of physical harm exists to the public, other contractor employees, Government personnel, or the impaired individual.

H17MARKETING

The Subcontractor shall have an in-depth knowledge of FasTrac including its purpose and how other Government agencies benefit from the use of its contracts. The Subcontractor shall have the capability to market the FasTrac products/services.

SECTION I - - CONTRACT CLAUSES

I.1DESIGNATIONS

The following contract clause(s) pertinent to this section is/are hereby incorporated by reference.

For the purposes of the clauses below which are incorporated by reference into the subcontract, the following terms shall be changed to the designations indicated below:

“Government” shall mean “Prime Contractor”

“Contractor” shall mean “Subcontractor”

“Contracting Officer” shall mean “Prime Program Manager”

“COR” or “Contracting Officer’s Representative” shall mean “Prime Program Manager”

“Contract” shall mean “Subcontract”

These changes do not apply to clauses allowing access to financial and accounting records and data.

1.2.52.252-2 CLAUSES INCORPORATED BY REFERENCE (FEB 1998)

This contract incorporates one or more clauses by reference, with the same force and effect as if they were given in full text. The full text of a clause may be accessed electronically at this address: www.arnet.gov/far/

52.202-1	DEFINITIONS (DEC 2001)
52.203-3	GRATUITIES (APR 1984)
52.203-5	COVENANT AGAINST CONTINGENT FEES (APR 1984)
52.203-6	RESTRICTIONS ON SUBCONTRACTOR SALES TO THE GOVERNMENT (JUL 1995)
52.203-7	ANTI-KICKBACK PROCEDURES (JUL 1995)
52.203-8	CANCELLATION, RESCISSION, AND RECOVERY OF FUNDS FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997)
52.203-10	PRICE OR FEE ADJUSTMENT FOR ILLEGAL OR IMPROPER ACTIVITY (JAN 1997)
52.204-2	SECURITY REQUIREMENTS (AUG 1996)

18

52.204-4	PRINTED OR COPIED DOUBLE-SIDED ON RECYCLED PAPER (AUG 2000)
52.204-7	CENTRAL CONTRACTOR REGISTRATION (OCT 2003)
52.209-6	PROTECTING THE GOVERNMENT’S INTEREST WHEN SUBCONTRACTING WITH CONTRACTORS DEBARRED, SUSPENDED, OR PROPOSED FOR DEBARMENT (JUL 1995)
52.215-2	AUDIT AND RECORDS - NEGOTIATION (JUNE 1999)
52.216-22	INDEFINITE QUANTITY (OCT 1995)
52.217-8	OPTION TO EXTEND SERVICES (NOV 1999)
52.222-1	NOTICE TO THE GOVERNMENT OF LABOR DISPUTES (FEB 1997)
52.222-3	CONVICT LABOR (AUG 1996)
52.222-4	CONTRACT WORK HOURS AND SAFETY STANDARDS ACT - OVERTIME COMPENSATION (SEPT 2000)
52.222-21	PROHIBITION OF SEGREGATED FACILITIES (FEB 1999)
52.222-26	EQUAL OPPORTUNITY (APR 2002)
52.222-29	NOTIFICATION OF VISA DENIAL (FEB 1999)
52.222-35	EQUAL OPPORTUNITY FOR SPECIAL DISABLED VETERANS, VETERANS OF THE VIETNAM ERA, AND OTHER ELIGIBLE VETERANS (DEC 2001)
52.222-36	AFFIRMATIVE ACTION FOR WORKERS WITH DISABILITIES (JUN 1998)
52.222-37	EMPLOYMENT REPORTS ON SPECIAL DISABLED VETERANS, VETERANS OF THE VIETNAM ERA, AND OTHER ELIGIBLE VETERANS (DEC 2001)
52.222-41	SERVICE CONTRACT ACT OF 1965, AS AMENDED (MAY 1989)
52.222-43	FAIR LABOR STANDARDS ACT AND SERVICE CONTRACT ACT-PRICE ADJUSTMENTS (MULTIPLE YEAR AND OPTION CONTRACTS) (MAY 1989)
52.223-5	POLLUTION PREVENTION AND RIGHT-TO-KNOW INFORMATION (APR 1998)
52.223-6	DRUG-FREE WORKPLACE (MAY 2001)
52.223-10	WASTE REDUCTION PROGRAM (AUG 2000)
52.223-14	TOXIC CHEMICAL RELEASE REPORTING (OCT 2000)
52.224-1	PRIVACY ACT NOTIFICATION (APR 1984)
52.224-2	PRIVACY ACT (APR 1984)
52.225-1	BUY AMERICAN ACT -SUPPLIES (MAY 2002)
52.225-3	BUY AMERICAN ACT - NORTH AMERICAN FREE TRADE AGREEMENT - ISRAELI TRADE (MAY 2002)
52.225-13	RESTRICTIONS ON CERTAIN FOREIGN PURCHASES (JULY 2000)
52.227-1	AUTHORIZATION AND CONSENT (JUL 1995)
52.227-2	NOTICE AND ASSISTANCE REGARDING PATENT AND COPYRIGHT INFRINGEMENT (AUG 1996)
52.227-14	RIGHTS IN DATA - GENERAL (JUN 1987)
52.228-5	INSURANCE - WORK ON A GOVERNMENT INSTALLATION (JAN 1997)
52.228-7	INSURANCE - LIABILITY TO THIRD PERSONS (MAR 1996)
52.229-3	FEDERAL, STATE, AND LOCAL TAXES (JAN 1991)
52.229-5	TAXES - CONTRACTS PERFORMED IN U.S. POSSESSIONS OR PUERTO RICO (APR 1984)
52.229-6	TAXES - FOREIGN FIXED-PRICE CONTRACTS (JAN 1991)
52.232-1	PAYMENTS (APR 1984)
52.232-7	PAYMENTS UNDER TIME-AND-MATERIALS AND LABOR-HOUR CONTRACTS (FEB 2002)
52.232-11	EXTRAS (APR 1984)
52.232-23	ASSIGNMENT OF CLAIMS (JAN 1986)
52.232-25	PROMPT PAYMENT (FEB 2002)
52.233-1	DISPUTES (JULY 2002)
52.237-2	PROTECTION OF GOVERNMENT BUILDINGS, EQUIPMENT, AND VEGETATION (APR 1984)
52.237-3	CONTINUITY OF SERVICES (JAN 1991)
52.239-1	PRIVACY OR SECURITY SAFEGUARDS (AUG 1996)
52.242-13	BANKRUPTCY (JUL 1995)
52.243-1	CHANGES. FIXED PRICE (AUG 1987), ALTERNATE II (APR 1984)

19

52.243-3	CHANGES - TIME-AND-MATERIALS OR LABOR-HOURS (SEP 2000)
52.244-2	SUBCONTRACTS (AUG 1998)
52.244-5	COMPETITION IN SUBCONTRACTING (DEC 1996)
52.245-2	GOVERNMENT PROPERTY (FIXED-PRICE CONTRACTS) (DEC 1989)
52.245-5	GOVERNMENT PROPERTY (COST-REIMBURSEMENT, TIME-AND-MATERIAL, OR LABOR-HOUR CONTRACTS) (JAN 1986)
52.246-25	LIMITATION OF LIABILITY - SERVICES (FEB 1997)

20

I.3FAR 52.244-6 SUBCONTRACTS FOR COMMERCIAL ITEMS (MAY 2002)

(a) Definitions. As used in this clause

“Commercial item” has the meaning contained in the clause at 52.202-1, Definitions.

“Subcontract” includes a transfer of commercial items between divisions, subsidiaries, or affiliates of the Contractor or subcontractor at any tier.

(b) To the maximum extent practicable, the Subcontractor shall incorporate, and require its subcontractors at all tiers to incorporate, commercial items or non-developmental items as components of items to be supplied under this contract.

(c)(1) The Subcontractor shall insert the following clauses in subcontracts for commercial items:

(i) 52.219-8,Utilization of Small Business Concerns (Oct 2000) (15 U.S.C. 637(d)(2)(3)), in all subcontracts that offer further subcontracting opportunities. If the subcontract (except subcontracts to small business concerns) exceed $500,000 ($1,000,000 for construction of any public facility), the subcontractor must include 52.219-8 in lower tier subcontracts that offer subcontracting opportunities.

(ii) 52.222-26, Equal Opportunity (Apr 2002) (E.O. 11246).

(iii) 52.222-35, Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (Dec 2001) (38 U.S.C. 42 12(a));

(iv) 52.222-36, Affirmative Action for Workers with Disabilities (Jun 1998) (29 U.S.C. 793).

(v) 52.247-64, Preference for Privately Owned U.S.-Flagged Commercial Vessels (Jun 2000) (46 U.S.C. Appx 1241) (flow down not required for subcontracts awarded beginning May 1, 1996).

(c)(2) While not required, the Subcontractor may flow down to subcontracts for commercial items a minimal number of additional clauses necessary to satisfy its contractual obligations.

(d) The Subcontractor shall include the terms of this clause, including this paragraph (d), in subcontracts awarded under this contract.

I.4FAR 52.246-20 WARRANTY OF SERVICES (MAY 2001)

(a) Definition. “Acceptance,” as used in this clause, means the act of an authorized representative of the Government by which the Government assumes for itself, or as an agent of another, ownership of existing and identified supplies, or approves specific services, as partial or complete performance of the contract.

(b) Notwithstanding inspection and acceptance by the Government or any provision concerning the conclusiveness thereof, the Subcontractor warrants that all services performed under this contract will, at the time of acceptance, be free from defects in workmanship and conform to the requirements of this contract. The Prime Program Manager shall give written notice of any defect or nonconformance to the Subcontractor within 30 days from the date of acceptance by the Government. This notice shall state either –

21

(1) That the Subcontractor shall correct or re-perform any defective or nonconforming services; or

(2) That the Government does not require correction or re-performance.

(c) If the Subcontractor is required to correct or re-perform, it shall be at no cost to the Government, and any services corrected or re-performed by the Subcontractor shall be subject to this clause to the same extent as work initially performed. If the Subcontractor fails or refuses to correct or re-perform, the Prime Contractor may make an equitable adjustment in the contract price.

(d) If the Government does not require correction or re-performance, the Prime Program Manager may make an equitable adjustment in the contract price.

(e) Neither party, under any circumstances, shall be liable to the other for any indirect, special, incidental, cover, punitive, or consequential damages or similar damages, including lost profits or lost data, even if such party has been advised of the possibility of such damages. Subcontractor’s cumulative liability to Prime Contractor and all other parties arising our of or relating to this agreement shall not exceed in aggregate the fees paid to Subcontractor hereunder.

I.5SUBCONTRACTING WITH FIRMS THAT ARE OWNED OR CONTROLLED BY THE GOVERNMENT OF A TERRORIST COUNTRY

(a) Unless theGovernment determines that there is a compelling reason to do so, the Subcontractor shall not enter into any subcontract in excess of $25,000 with a firm, or a subsidiary of a firm, that is identified, on the List of Parties Excluded from Federal Procurement and Non-procurement Programs, as being ineligible for the award of Defense contracts or subcontracts because it is owned or controlled by the government of a terrorist country.

(b) A corporate officer or a designee of the Subcontractor shall notify the Contracting Officer, in writing, before entering into a subcontract with a party that is identified, on the List of Parties Excluded from Federal Procurement and Non-procurement Programs, as being ineligible for the award of Defense contracts or subcontracts because it is owned or controlled by the government of a terrorist country. The notice must include the name of the proposed subcontractor and the compelling reason(s) for doing business with the subcontractor notwithstanding its inclusion on the List of Parties Excluded from Federal Procurement and Non-procurement Programs.

I.6PROHIBITION ON USE OF NONIMMIGRANT ALIENS—GUAM

The work required by this contract shall not be performed by any alien who is issued a visa or otherwise provided nonimmigrant status under Section 101(a)(15)(H)(ii) of the Immigration and Nationality Act (8 U.S.C. I 101(a)(15)(H)(ii)). This prohibition does not apply to the performance of work by lawfully admitted citizens of the freely associated states of the Republic of the Marshall Islands, the Federated States of Micronesia, or the Republic of Palau.

22

EX-21.1

Exhibit 21.1

List of Subsidiaries

None

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the Registration Statements on Form S-3 and related prospectuses (Registration Nos. 333-125014, 333-115316, 333-108380, 333-91548, 333-64732 and 333-60076) and on Form S-8 (Registration Nos. 333-125823, 333-116276, 333-91544, 333-64166, 333-90489, and 333-42803) of VCampus Corporation of our report dated March 10, 2006 (except for note 15 at to which the date is March 22, 2006) with respect to the 2003, 2004 and 2005 financial statements and schedule of VCampus Corporation included in this Annual Report (Form 10-K).

 /s/ REZNICK GROUP, P.C.

Vienna, Virginia

March 23, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Narasimhan P. Kannan, certify that:

1.I have reviewed this annual report on Form 10-K of VCampus Corporation;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 21, 2006	By:		/S/ NARASIMHAN P. KANNAN
		Narasimhan P. Kannan
		Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Christopher L. Nelson, certify that:

1.I have reviewed this annual report on Form 10-K of VCampus Corporation;

2.Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of this annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s independent registered public accounting firm and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 21, 2006	By:	/S/ CHRISTOPHER L. NELSON
			Christopher L. Nelson
			Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of VCampus Corporation for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of VCampus Corporation as of, and for, the periods presented in the Report.

	/S/ NARASIMHAN P. KANNAN
	Narasimhan P. Kannan
	Chief Executive Officer
March 21, 2006

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report on Form 10-K of VCampus Corporation for the period ended December 31, 2005 as filed with the Securities and Exchange Commission on or about the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge:

(1)The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of VCampus Corporation as of, and for, the periods presented in the Report.

	/S/ CHRISTPHER L. NELSON
	Christopher L. Nelson
	Chief Financial Officer
March 21, 2006